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 With growth hard to come by amid the lethargic economy, companies
ranging from snowmobile manufacturers to furniture sellers are
incorporating virtual reality that so far has mostly been found in
video games. Their bet: that the trendy headset-based technology can
help them build sales and cut costs.
Theme park operator Six Flags Entertainment Corp <SIX.N> is
outfitting riders on some of its aging roller coasters with Samsung
VR headsets, allowing the company to brand the rides as brand-new
without having to build costly new attractions.
Snowmobile manufacturer Arctic Cat Inc <ACAT.O> has developed
virtual reality rides that customers can use to try out new models
at dealerships, while eBay Inc's StubHub is testing technology that
allows fans to check out the view from different seats before buying
tickets.
In the most recent round of corporate earnings reports, some 38
companies - including the New York Times Co, GoPro Inc, and
furniture-seller Wayfair Inc - highlighted virtual reality as a part
of their business plans.
That was a 375 percent jump from the 8 that did so at this time last
year, according to a Reuters analysis of earnings calls transcripts.
Nearly all were either consumer or technology companies, suggesting
that virtual reality technology has a ways to go before becoming
mainstream.
The increasing focus on virtual reality comes at a time when
first-quarter earnings for the S&P 500 are expected to fall 5.4
percent from the same time last year, while second-quarter earnings
are expected to fall 3.4 percent from the year before, according to
Thomson Reuters estimates.
Yet for all of the enthusiasm, there is little evidence that virtual
reality can deliver substantial growth.
"It is complementary to places like Six Flags, I would suspect, but
not a game changer," said Brain Smoluch, a principal at Hood River
Capital Management who owns shares in Himax Technologies Inc, which
makes semiconductors used in virtual reality displays.
FEW PURE PLAYS
There are few pure plays for investors who want to buy into virtual
reality.
Facebook Inc, which paid $2 billion for its Oculus virtual reality
division in 2014 and began shipping its first $599 Oculus Rift
headsets in March, has the best-known virtual reality head gear,
though other well-known companies including Google's parent Alphabet
Inc and Apple Inc are rumored to be working on high-powered headsets
of their own. Neither company returned requests to comment.
Virtual reality is such a small part of Facebook's business that
most analysts do not break out Oculus in their revenue or earnings
estimates. Nor did Facebook give any numbers on how many Oculus
headsets it expects to sell on its most recent earnings call.
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"This is very early and we don't expect VR to take off as a
mainstream success right away ... but eventually we believe that VR
is going to be the next big computing platform and we're making the
investments necessary to lead the way there," Chief Executive Mark
Zuckerberg said.
Some analysts, however, already are seeing a boost to the companies
they cover.
"I don't think it's possible to break out (the benefit of VR
technology) with any sort of precision," said Tyler Batory, an
analyst at Janney Montgomery Scott who covers Six Flags. "But I can
tell you that I think they are going to report record results this
year because their growth rate is accelerating, and the growth rate
wouldn't be accelerating if they didn't have it."
Outfitting riders with VR headsets is much cheaper than building an
entirely new roller coaster, he added, while only requiring three
additional employees - two to disinfect the headsets after each ride
and one to make sure riders have them on correctly.
Companies that incorporate virtual reality technology now could spur
consumer interest, which should lead to further adoption rates by
their competitors, said Michael Cuggiono, a portfolio manager at San
Francisco-based Permanent Portfolio funds.
As a result, he's been buying shares of Facebook, whose Oculus
technology could become the industry standard.
"It's cost-effective, it's efficient, and it helps you avoid some of
the problems that come with adding new employees," he said.
(Reporting by David Randall; editing by Linda Stern and Phil
Berlowitz)
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