Analyst predicts Oculus Rift will be sold at cost, ship 5m units in 2016

Facebook will sell the Oculus Rift virtual reality headset at cost in an attempt to boost early adoption, Credit Suisse has predicted.

As reported by Barron’s, the analyst group reckons Facebook will hope to make money on the headsets via subsequent software sales. This model is not a million miles away from the one often seen in the console market, although in that sector platform holders are able to recoup on all software sales due to the closed nature of their platforms. It’s not clear at this stage whether Facebook plans to do the same with Oculus.

The firm also pegs the RRP at $350, despite Oculus boss Palmer Luckey saying earlier this month that the device is likely to cost over that amount. It also predicts 2016 shipments of 5m, providing it launches in Q1 next year as has been suggested.

While pricing for the Oculus Rift has yet to be announced, various media outlets have pegged initial pricing at ~$500,” the report states. Our current forecast implies that Oculus will ship around 5m units in 2016, with an average ASP of roughly $350. 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.

We expect Facebook will grow hardware revenue generated from Oculus from $2.1bn in FY16 to $2.6bn 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 modelling an initial negative gross profit impact from the initiative – with Oculus gross margins reaching breakeven by 2021 and contributing around $50 million in gross profit by FY22.”