Saturday, September 23rd 2023

Ready Player AIM – The stocks that will benefit from a virtual reality revolution

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Although virtual reality (VR) technology has been around for decades, it has only recently started to look like a truly promising opportunity for returns in the highly-competitive global technology market.

Gadgets like Nintendo’s Virtual Boy and the Sega VR headset offered early VR experiences in the nineties, but the technology failed to catch the imagination of users and customers were put off by the high price tag. In the years since then, VR has come on leaps and bounds, and gadgets like Facebook’s Oculus Rift and HTC’s Vive are beginning to set the mainstream alight with highly realistic experiences and affordable prices.

Although the size of the global VR market remains modest – it was worth around $14bn in 2017 – International Data Corporation expects it to grow to $143bn by 2020. Likewise, market research company Statista estimates that revenues from the sale of augmented reality, virtual reality and mixed reality devices will rise from $7.2bn in 2017 to $84.7bn in 2020.

VR’s supporters have made predictions like these for years, so it is only natural for some investors to be sceptical when deciding whether or not to get exposure to the technology in their portfolio. However, if you really do think the VR market will succeed this time around, then it could very much be worth investing while the companies involved are still in their early stages. Here are two hotly-tipped AIM stocks to consider if you think VR is the way forward.

VR Education (LSE:VRE)

VR Education only listed two months ago, so there is naturally a degree of risk in backing it at such an early stage. However, in that short space of time it has managed to rise from its 11.75p placing price to 15.75p, giving it a market cap of £27m.

The business offers a flagship product called Engage, which uses VR to deliver digital education and corporate training. Engage will be released in its test format in H1 this year but is already generating revenues from partnerships with high-profile clients like Oxford University and the BBC.

VR Education plans to boost turnover by using Engage to create additional revenue share partnerships with educational institutions. With technology market research firm Technavio predicting that the value of VR in the global education market will shoot up from $187.5m in 2016 to $1.7bn by 2021, it seems like the demand could be there.  Engage is also targeting the corporate market and plans to generate turnover with tailor-made VR training content and meeting room space.

Aside from Engage, VR Education is also generating revenues from standalone virtual reality experiences. The most popular of these is a recreation of the Apollo 11 moon landings, which has been launched on PlayStation, Steam and will be included in the highly-anticipated Oculus Go launch collection. The firm has sold around 100,000 copies of Apollo, generating revenues of about $1m against development costs of just €100,000.

VR Education is a very young company that is yet to turn over a profit – it lost c.€330,000 in the nine months to 30 September 2017. However, its niche focus on educational and corporate VR makes it very well positioned to benefit if the broader VR market takes off. What’s more, it is backed by a management team with plenty of skin in the game – both its CEO and COO own 20pc stakes in the business.

EVR Holdings (LSE:EVRH)

EVR Holdings listed in May 2016 and has drummed up a considerable amount of excitement among investors over its short time trading. As at the time of writing, the firm has a huge market cap of c.£150m despite not yet generating a single bit of revenues. What has got people so excited?

EVR Holdings is a holding company for MelodyVR, which was launched to the public at Facebook’s F8 conference in San Jose earlier this month. MelodyVR is a VR music app/platform that simulates the experience of actually being at a concert, allowing fans to purchase digital tickets to sold-out, real-world events. It was launched in tandem with the Oculus Go, run by Facebook, and will soon be made available on VR devices from PlayStation and Google.

Aside from having the support of many of the world’s tech giants, MelodyVR has also secured content partnerships with the world’s three largest record labels – Universal, Warner, and Sony. Last June, the firm announced a game-changing global collaboration with Microsoft, securing MelodyVR’s availability to 500,000,000 Windows 10 consumers.

Of course, many will look at MelodyVR – a young firm with a considerable valuation that is yet to make a profit – and call it over-valued. However, many seem to see the firm as a great way of accessing the growing VR market, with its share price soaring by more than 20pc on two occasions this year following updates ahead of MelodyVR’s launch. Even if you don’t believe in the firm’s prospects yourself, the sheer faith in the stock held by some corners of the market could be an opportunity itself.

Importantly, the company now has plenty of cash in the bank, having raised £20m last month just days ahead of launch.  The money will be used to launch MelodyVR across numerous territories, including Latin America, South Korea, China, Taiwan, Japan, Australia, and New Zealand. It will also be invested in global content creation, engineering, research & development, marketing, new hires and new offices. Finally, it will also be used to explore additional technologies such as interactive advertising and augmented reality in a bid to generate other revenue streams.

This is an ambitious remit, but with the placing leading shares to rise 13.2pc, the story only seems to have secured in the mind of investors that the firm is on the right path. EVR Holdings is at the start of its journey and will not be for everyone. However, the business could be an excellent bet for investors looking for VR exposure if they purchase shares at the right price and the firm ends up delivering.