Oculus to sell 5m units next year - Credit Suisse

Firm predicts virtual reality headset to sell at cost initially

Virtual reality continues to be a big discussion point for the industry, as no less than three manufacturers are getting ready to launch products next year. What the actual marketplace impact will be in the near-term, however, remains to be seen. Oculus Rift still doesn't have an official launch date or price, but Palmer Luckey has stated that the headset is likely to be at least $350. While it's hard to make a sales projection without official information, the analysts at Credit Suisse have done so based on the $350 estimate.

According to a Credit Suisse report cited by Barron's, Oculus will only sell around 5 million units next year. Furthermore, the firm does not expect Oculus to make any money on the initial hardware sales.

"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 overtime via associated software revenue. Note that our current projections do not contemplate any software revenue, although at launch Oculus 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," the firm wrote.

"Net-net, we expect Facebook will grow hardware revenue generated from Oculus at a 4 percent five-year CAGR from $2.1 billion in FY16 to $2.6 billion in FY21. However, given our assumption that Facebook will once-again demonstrate a willingness to forgo near-term monetization in return for increased product adoption, we are modeling an initial negative gross profit impact from the initiative - with Oculus gross margins reaching breakeven by 2021 and contributing ~$50 million in gross profit by FY22."

Under the old razor-and-blades business model, it's not unusual for hardware to be sold at a loss in the early stages. Sony and Microsoft have repeatedly sold consoles at a loss in the beginning, aiming to make their money back through software. What's not clear at this point, however, is whether Oculus will have a closed platform to enable it to make money back on third-party software. Regardless, Facebook undoubtedly has grand plans not just for video games in VR, but for movies, general entertainment, communication, education and more. VR has enormous potential and Facebook can certainly take a bath on a hardware launch in return for long-term gain.

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Latest comments (6)

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.6 years ago
Are they taking into account the requirements to run it? That's an incredible adoption rate given that Steam statistics show that less than 5% of all Steam hardware configurations currently meet the Oculus requirements.
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Greg Wilcox Creator, Destroy All Fanboys! 6 years ago
@Jim: I guess they're taking into account some users are waiting for the Rift to finally get a release date so they can upgrade accordingly. That will add a few percent to that total. Maybe there are non-Steam users who have or will upgrade to a more powerful rig later on. I'd also imagine (or hope to hell) that someone at Facebook has thought of getting behind an Oculus-ready off the shelf "budget*" PC that people can buy, take home and get set up with a minimum of fuss. There's nothing worse than a revolution where the troops can't figure out which end of the sword goes where.

*("budget" being a comical bit of buzz-wordiness here, as I'm sure the entry level price without that $350 Rift is well-over $1000 for something one can't build him or herself)
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Andrew Jakobs Lead Programmer 6 years ago
I don't think it will sell 5 million units, especially as they mentioned that in the beginning the unit would be sold in a limited quantity..

If they'll sell 2 to 3 million units I think it would already be a high number.. We all know it won't sell for $350 but at least $399..
Also we shouldn't forget the HTC Vive, even though it might have a higher price it also comes (at release) with 'better' controllers..
And there is Sony, which will also sell some units (not a lot I gather as it's just a too expensive add-on for it to be PS4 only (and that's what I think Sony is doing wrong, they should also release drivers for it on the PC, and not let the community having to hack the device like they needed to with the dualshock and move, those addons are sold with profit, so I don't understand why they won't just release decend drivers for it)..
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Greg Wilcox Creator, Destroy All Fanboys! 6 years ago
I'd imagine if Sony was still in the PC business, they'd have Morpheus up and running on every Vaio that could run it. Then again, they did sleep on implementing PS-PS3 play on their PC's for a few reasons I've never really agreed with. So I guess Morpheus sleeps with the fishes until some does manage to hack it into working on a decent gaming rig.
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Craig Page El Presidente, Awesome Enterprises6 years ago
I only accept predictions made by Michael Pachter. Or that guy who used to comment in every story that mobile would defeat console, and PC, and board, and playground, and every kind of gaming in existence.
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Roberto Dillon Associate Professor, James Cook University6 years ago
I am no analyst but I really doubt it will sell 5 million units during next calendar year. No launch date, no price (just an indication it will be > $350), most likely needing upgraded PC... I would be (positively) surprised if it will sell more than 1M.

On the other hand, I'd be a bit more optimistic about Sony VR: considering the PS4 currently has an installed user base of 25M and keeps selling well, if they can manage to keep to price around $300, selling between 3 and 5 million units next year should actually be possible.
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