A visitor uses Oculus virtual reality goggles at the exhibition stand of German Research Center for Artificial Inteligence at the world's biggest computer and software fair CeBit in Hanover, Germany, March 14, 2016. REUTERS/Nigel Treblin/Files
NEW YORK: A growing number of U.S. companies are counting on virtual reality for real profits.
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
Snowmobile manufacturer Arctic Cat Inc
In the most recent round of corporate earnings reports, some 38 companies - including the New York Times Co
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
FEW PURE PLAYS
There are few pure plays for investors who want to buy into virtual reality.
Facebook Inc
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.
"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.- Reuters
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