Why Is Nokia Entering The Virtual Reality Space?
In July 2015, Nokia (NYSE:NOK) revealed its plans to enter the virtual reality market by launching the world’s first real time professional production equipment to make immersive games, movies and TV. [1] The first launch in this portfolio of media equipment was a virtual reality camera called Ozo, which made its Hollywood debut in November 2015, priced at $60,000. [2] While Nokia’s 360-degree camera is the first product in this category, other companies such as Bubl, Go Pro and Matterport are planning to release similar products next year, according to Tim Merel managing director of Digi Capital. Nokia’s timing gives it a first mover’s advantage in the VR (virtual reality) content space, where we believe there is tremendous growth potential.
See our complete anal ysis for Nokia stock here
Augmented/Virtual Reality Market Might Reach $150 million by 2020
The virtual reality market is crowded as far as head mounted displays are concerned. Google Glass, Oculus from Facebook and Microsoft’s Holo Lens are some of the key players. Digi Capital forecasts that the Augmented and Virtual Reality (AR/VR) market could generate $150 billion as revenues by 2020 with virtual reality alone accounting for $30 billion. [3] While the hardware space looks crowded, the content space where Nokia is entering is fairly open. Nokia’s management stated that 20th Century Fox is already using Ozo cameras and the company is setting up an office in Hollywood to develop additional relationships. One key feature that separates Ozo from other virtual reality cameras is the ability to see live playback of the content being filmed. This feature could prove very useful for content creators and give Nokia a competitive edge. Apart from creating virtual reality content, the 360 degree view provided by the camera could have other uses such as training medical students by placing the camera above the patient. These alternative uses can lead to a higher demand for this device. In the near future the company plans to provide this camera for rental and is also planning an affordable “prosumer” virtual reality camera which will bring this technology to a wider audience of content creators.
Nokia has deep expertise in optics, sensors and audio and the company believes it can use this ability to revolutionize media and entertainment through virtual reality. While the 360 degree video market is in a nascent stage, it is estimated that it can grow to a $ 10 billion revenue market by 2020. [2]. We expect Nokia’s services and non-core revenues to increase from around $5 billion to nearly $ 6 billion by 2022. Through the virtual reality market, if Nokia is able to increase these revenues gradually and reach $ 8 billion by the end of our forecast period, while keeping the margins intact, there can be a more than 10% upside to our price estimate.
We believe this market could have a huge growth potential in future, although at this stage the exact impact on Nokia’s valuation cannot be quantified. Nokia being the first player in providing content hardware and given its technical expertise in this field, will have a competitive edge and this business could be a growth driver in future.
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- Nokia returns to consumer tech with virtual reality camera, FT.com, July 29, 2015 [↩]
- Why Nokia Is Entering The Virtual Reality Fray, Fortune, November 30, 2015 [↩] [↩]
- Augmented/Virtual Reality to hit $150 billion disrupting mobile by 2020, Digi-capital, April 2015 [↩]