After decades of fits and starts, virtual reality is finally ready for prime time-and it could deliver strong growth for investors who get in now.
A May report from investment bank Piper Jaffray called virtual reality and augmented reality (more on the difference between the two a little further on) "the next mega tech themes through 2030." But patience is key: "We liken the state of virtual and augmented reality today as similar to the state of mobile phones 15 years ago," wrote Piper's analysts.
For most people, VR is just another way of playing video games, but it has big potential in many other areas.
One of those is health care: right now, for example, psychiatrists at the University of Louisville are using virtual reality headsets to put phobic patients in the situations that frighten them-think fear of flying or public speaking-but in a controlled way, helping them overcome their anxiety.
So how big of a market could we talking about here?
Because VR is essentially at a standing start (currently just a $37-million market, according to Business Insider), forecasts vary, but they agree there's strong growth ahead. BI, for its part, sees VR headset shipments surging at a 99% compound annual growth rate between 2015 and 2020, when they'll create a hardware market worth about $2.8 billion.
Piper Jaffray sees things a bit differently: Looking out to 2025, it predicts the VR hardware market will be worth some $62 billion, with content, such as live sports events, concerts, movies and, of course, video games, accounting for another $5.4 billion.
Unfortunately, most VR tech is still the domain of private companies-a tough area for most investors to access-but large cap tech stocks are also grabbing early positions in the space. Here are three:
The social network jumped out to the lead in VR with its $2.3-billion purchase of startup Oculus in March 2014.
In early 2016, the company will start selling Oculus's VR headset, the Rift, to consumers. The precise release date isn't known, but last week, Credit Suisse analyst Stephen Ju predicted Rift sales would hit 5 million units next year, though he's based that assumption on a couple of factors that aren't yet clear.
One is price. The exact figure either hasn't been arrived at or is being kept under wraps at Facebook's Menlo Park, Calif. headquarters, but Credit Suisse expects a base price of $350, though Oculus founder Palmer Luckey has said it'll likely be more than that. Either way, Ju expects the Rift to sell for at or near cost. In an October 9 research report, he wrote:
"We expect Facebook to price the headsets at cost in an attempt to drive initial consumer adoption, with the expectation that the company plans to monetize the devices over time via associated software revenue."
Ju sees Rift headset sales growing at a 4% compound annual rate, from $2.1 billion in 2016 to $2.6 billion in 2021, but with Facebook focusing more on sales volumes than profits, the device won't break even until 2021. In 2022, CS sees it contributing $50 million to the bottom line in 2022.
That's a long time, to be sure, but these figures don't include software. According to Ju, at launch the Rift "will be offering a number of made-for-VR games and video content from partnering developers and content owners, which include Sega, Lionsgate, Fox, Twitch, Hulu, and Vimeo."
Last month, Product Vice President Nate Mitchell said the Rift has more than 200,000 registered developers. In January, Facebook launched the Oculus Story Studio, which includes talent from animation houses like Pixar, to develop movies for the platform.
It should come as no surprise that Alphabet --the conglomerate formerly known as Google -- is also marking out its turf in the VR business.
The search giant's entry is decidedly lower-tech than Oculus: a simple cardboard viewer that wraps around a smartphone and costs around $20. Despite Google Cardboard's rough-and-ready nature, Piper Jaffray sees it as a good, low-cost way to drive adoption:
"The low price of Google Cardboard helps people try VR and paves the way for a consumer-ready version in the $200-$400 range. After an initial phase of slower growth, we expect consumer awareness and interest to compound and expect hardware and content sales to uptick significantly," reads its report.
That strategy appears to be working: last week, tech Web site Road to VR reported that the Cardboard app had reached 15 million downloads in Google's Play store, and the search giant has now made it available in more than 100 countries and 39 different languages.
In addition to Cardboard, Google was part of a group of companies that made a $542-million investment in Magic Leap, a start-up that's developing augmented reality technology. Unlike VR, which puts users in an entirely simulated environment, AR projects holographic images over their current surroundings.
A third player to keep a close eye on in 2016 is Sony, which is poised to launch its PlayStation VR headset -- dubbed "Project Morpheus" during its development -- early in the year.
Like Facebook, Sony can count on a large number of established users to market to, in this case owners of PlayStation game consoles. The company's PlayStation 4 console is on track to sell
during the device's lifetime.
"You not only have the weight of Sony, you have the weight of a renewed Sony gaming business and have to factor in the fact they make TV shows and movies," Mike Vorhaus, of research firm Frank Magid Associates, told the U.K.'s Independent newspaper in June.
In August, Piper Jaffray analyst Travis Jakel estimated Sony could sell 1.4 million headsets in 2016, behind the Rift at 3.6 million.
Other VR stocks to keep on your radar include Samsung Electronics, which has teamed up with Oculus to create the Gear VR, a headset that will work with newer Samsung phones and will start selling for $99 next month. Piper Jaffray's Jakel sees the Gear VR holding down the top spot in terms of 2016 sales, at around 5 million units.
You're probably wondering where Apple stands in all of this. The tech giant hasn't rolled out any VR plans yet, but it hasn't been snoozing, either. Tim Cook's company has reportedly been hiring workers with VR expertise and recently acquired augmented-reality start-up Metaio.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.