Gene Munster – from his new research-driven, venture capital firm Loup Ventures – is examining close-up the future of the tech sector, which he believes will belong to those who can master operating systems (OS) and augmented reality (AR). How will Snap Inc (NYSE:SNAP), Apple Inc. (NASDAQ:AAPL), and Facebook Inc (NASDAQ:FB) stand the test of time and revolutionary technology? Let’s dive in:
Snap Has the Savvy Communication Advantage, But Still Not a Top Horse
Sentiment out on the Street is certainly not shedding positive light on Snap. Yet, Munster underscores a key advantage investors might be overlooking: the Snapchat parent company’s camera bull’s eye on utilizing snapshot photography as communication.
Munster asserts, “Communication is a key use case for AR, which represents Snap’s biggest advantage. The camera is already the basis for communication today, not text. That trend will be even more pronounced in the future. Snap’s focus on the camera as a communication tool gives it a singular focus around which to develop great experiences. Spectacles are an early example.”
Yet, while the analyst believes Snap’s innovative use of communication is an asset, he ultimately does not see the company as a front-runner of the AR/OS race.
True, communication is integral to AR. “However, it’s hard to envision Snap winning the AR OS battle given that they can’t offer incremental features beyond social to developers. For this reason, we think it is Snap’s goal to do one thing extremely well: communication in AR. In this sense, they could be an intermediary between developers and the larger OSes that enables unique AR functionality beyond the tools created by the OS owner. We still view this role as highly valuable, but not in the same league as owning the OS itself,” Munster contends.
TipRanks analytics show SNAP as a Sell. Out of 7 analysts polled by TipRanks in the last 3 months, 2 remain sidelined and 5 are bearish. With a loss potential of 18%, the stock’s consensus target price stands at $18.14.
Apple Is the Favorite to Win
From Munster’s standpoint, Apple is making it clear that not only has the tech giant entered the ring, the gloves are off. Apple is a player who is “carefully positioned” itself to capture a slice of the AR/OS pie.
“Apple has aggressively let the market know that it intends to be a player in AR. Tim Cook has made public comments about the company’s interest in AR six times in the last seven months. The next iPhone, if it integrates a dedicated 3D mapping chip as expected, could be the first AR hardware to gain mass adoption (more than 100m units a year). The iPhone’s new chip will not only enable developers to create unique AR experiences on the iPhone, but Apple may also show off the capabilities of the chip with help from Prime Sense and Metaio, two of the company’s more recent AR software acquisitions,” explains Munster.
At least “in the foreseeable future,” the tech giant has odds-on-favorite as one of the big players “likely to win the AR OS race,” having already been one of the “prior OS winners” as well as gaining edge on the mobile ground. Munster puts ideal odds on Apple.
TipRanks analytics exhibit AAPL as a Buy. Based on 37 analysts polled by TipRanks in the last 3 months, 28 rate a Buy on AAPL, 7 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $145.79, marking a nearly 5% upside from where the stock is currently trading.
Facebook Prizes VR Over AR
Where does Mark Zuckerberg’s social media titan fare amongst the fray? As far as strategy goes, Zuckerberg was quick to recognize the importance of OS and AR. However, Munster assesses FB’s predominant focus to spotlight virtual reality (VR) above all, which makes the titan’s holdings in AR less strong.
“Facebook was early to recognize the opportunity to own an OS with Oculus. In 2014 at the time of the Oculus acquisition, Zuckerberg commented, ‘We’re making a long term bet that immersive virtual and augmented reality will become a part of people’s daily lives.’ Over the past three years Zuckerberg has been Oculus’s headline product evangelist, which emphasizes his determination to be a force in VR & AR for the long term. Zuckerberg has also characterized VR as 5-10 years ahead of AR. While there is definite overlap between VR and AR – and we believe Facebook is experimenting on both – it seems the company is more focused on VR at this point. We think this makes sense given the company’s relative weaknesses in the AR stack (maps and informational data), which are less relevant in VR. Social is their core competency, which, alongside content, are the two most important elements to winning the VR OS layer,” Munster surmises.
TipRanks analytics demonstrate FB as a Strong Buy. Out of 36 analysts polled by TipRanks in the last 3 months, 34 are bullish on Facebook stock and 2 remain sidelined. With a return potential of nearly 17%, the stock’s consensus target price stands at $160.66.