While VR will possibly lead to growth in various tech stocks, investors seeking to benefit from VR could find special opportunities in Facebook (NASDAQ:FB) and Qualcomm (NASDAQ:QCOM). Let’s see more about why these two are such great virtual reality stocks for June.
Around 44% of the planet’s population uses some part of Facebook every month. This brings into question if they can possibly find more growth. Facebook executives hope that VR will help provide some of the solution. Facebook bought Oculus back in 2014 and started investing in it, but only recently is it becoming the company’s biggest growth driver.
In the Q1 earnings call for this year, CEO Mark Zuckerberg said VR was an “important part” of how the public will interact with PCs in the years to come. He also said the Oculus Quest 2 headset has beaten their expectations after the holiday season. He went on to say the most used augmented reality apps are social apps, validating his company’s theory that Facebook synergies with Oculus to drive growth in this area.
For the first quarter of this year, Facebook’s “other revenue” sector, which mostly means Oculus, saw revenue increase 146% y/y to $732 million. This is only a small part of the $26.2 billion in the company’s revenue. But it represents a big increase from the 72% growth in 2020 and the 26% uptick in 2019.
Like the company’s revenue numbers, Facebook’s stock keeps going up — it climbed 48% over the past year. Net income went higher by 94% as the increase in operating expenses lagged the revenue growth. This allowed the company’s P/E ratio to lower over the past year, hitting 28. Given the growth in Oculus and the total gains, Facebook seems like a great option for making profits from VR.
Investors see Qualcomm as primarily a company making smartphone chipsets. However, the firm also creates a chip for what it labels Extended Reality (XR), which uses mixed reality (MR) along with VR and AR into their SnapDragon XR2 product. It partners with others like Verizon, and their SnapDragon XR2 is found inside Facebook’s Oculus Quest 2. This important alliance gives a competitive edge to both as it pushes Qualcomm’s influence in VR and Facebook’s growth in this sector.
Qualcomm does not give details about revenue for its XR chips. However, the Qualcomm Technology Licensing (QTL) division expanded its revenue by 52% y/y in the past quarter, making up around $1.6 billion of the firm’s $7.9 billion in revenue. This was in roughly in line with total revenue growth.
Thanks to new 5G tech, Qualcomm also raised its revenue by 67% during their first two quarters of this fiscal year when compared with the six months of 2020. This allowed net income to increase by 203% over that time frame due to smaller upticks in operating expenses.
Although Qualcomm’s price increased by right over 65% over the past 12 months, profit growth has kept the valuation in line. Qualcomm stock now trades for around 19 times earnings, a 20% lowering from year-ago amounts. While 5G should keep causing profit increases, its VR offerings might enhance that impressive increase even more.
Author: Steven Sinclaire