Vizio is best known for bargain TV, but wants IPO investors to focus on the high-growth advertising business instead
An employee arranges a display of Vizio Inc. HD televisions in a Best Buy Inc. store in Paramus, New Jersey.
Mark Kauziarich | Bloomberg | Getty Images
Vizio grew into a top-selling TV company in the US about 15 years ago by signing deals with large box stores like Costco and Best Buy, selling high definition televisions at low prices.
The company now sells over 7 million televisions per year and has nearly $ 2 billion in revenue from these devices.
But that’s not the story Vizio is selling to investors as it prepares to go public next week.
“One of the most important addressable markets we are focusing on for our future growth is, of course, television advertising,” said Adam Townsend, CFO of Vizio, on the company’s online IPO road show. “The shift in viewers from linear to ad-supported streaming is significant and we know that ad dollars will increasingly follow viewers.”
While Vizio is competing with Samsung, Sony, LG, and TCL to bring its big screens to American homes, the competition that matters most is now from streaming providers Roku, Amazon, and Google. Almost all of the growth in the TV industry has come from subscription services like Netflix, Amazon Prime Video, and Disney Plus, as well as advertisers trying to reach the millions of people who are switching from traditional cable to over-the-top television.
Vizio needs people who buy its televisions, even with a small profit margin, so that it can make real money on its own SmartCast operating system. Like Roku, Amazon Fire TV, and Google TV, SmartCast offers access to most major streaming services (but not HBO Max), as well as a variety of free and paid channels.
Vizio generates revenue from advertisements on its home screen and in some free content, and sees a decrease in subscription sales to Netflix and other services when users log in on their SmartCast TVs. SmartCast accounts rose 61% to 12.2 million last year.
Paul Erickson, an analyst at research firm Parks Associates, said Vizio’s biggest advantage in trying to attract advertisers is that it is a popular brand with a large retail presence and a large presence in American households. In a market that Samsung dominates in terms of units sold, Vizio is consistently one of the top 3 sellers.
“If you are trying to reach a TV manufacturer that covers much of the market in the US, they are sure to be very present,” he said.
The growth is in streaming
Vizio was founded 19 years ago in Los Angeles by William Wang, a Taiwanese immigrant who survived the crash of Singapore Airlines Flight 006 in 2000. By 2007, Wang Vizio had made Vizio the best-selling flat panel TV. In a video for potential IPO investors, Wang said he was selling Vizio’s first plasma TVs at Costco for less than $ 2,000 when competing products sold for over $ 10,000.
In 2016, Vizio introduced SmartCast to power its popular TVs with its own software.
“A lot of brands are fighting for limited retail space,” Wang said in the video. “To stay competitive, we had to find a way to generate recurring income from the televisions we use so we could keep the cost of televisions down for our retailers and consumers.”
Vizio made its first attempt at going public in 2015 when it was actually doing more revenue than it is today due to higher TV prices. The company completed its IPO in 2016 after China’s LeEco offered to buy it for $ 2 billion. The deal fell apart the following year due to regulatory complexity and in 2018 Vizio sold shares to Taiwanese manufacturing partners Foxconn and Innolux.
A quick look at Vizio’s financials makes it clear why the company’s future depends on streaming.
Device sales rose 7% to $ 1.9 billion in 2020 but remained below the 2010 total. This is because TV prices have decreased each year, offsetting increased shipments. Vizio’s streaming business, or “Platform +”, grew 133% to $ 147.2 million last year.
While the platform business accounted for just 7.2% of total revenue, it generated 38% of Vizio’s gross profit, which enabled the company to quadruple its net income for the year.
Michael O’Donnell, chief revenue officer, said in the investor presentation that the company launched its advertising direct sales team a little over a year ago. Brands like Campbell Soup, Guinness, Fitbit, AT&T, and Progressive spend money targeting SmartCast users, similar to how they find relevant audiences online.
Vizio is also making its debut at top advertising events. In May, the company will be participating in the Interactive Advertising Bureau’s NewFronts, where online publishers and platforms present their programs, audience data and tools to media buyers. Amazon, Snap, Twitter and Google’s YouTube will also be there.
An advertisement for FireTV on TeaTV.
Investors have to do a lot of convincing if they are ever to evaluate Vizio as anything other than a consumer hardware provider. In its updated prospectus on Tuesday, Vizio said it expected shares to sell on its IPO at a price of $ 21-23, which would value the company at $ 4.2 billion at the top of the range.
With sales roughly 2.1 times what it did in 2021, Vizio would bring trading old clumsy hardware companies like Samsung and Sony closer than Roku, which currently ranks 26 in value for money. The particular challenge for Vizio is that consumers should opt to buy their TVs first and then opt to use their operating system rather than plugging in a Roku, Google, or Amazon device.
“To the extent that consumers who purchase a Vizio Smart TV do not engage with our SmartCast operating system and instead use their Smart TV with one of our competitors’ solutions or for other purposes, our ability to generate platform + net sales can , be affected. ” Company confirmed in its prospectus.
William Wang, CEO of VIZIO, at LeEco and the VIZIO press conference in Hollywood where it was announced that LeEco has acquired VIZIO for $ 2 billion in Los Angeles on Tuesday, July 26, 2016.
Jeff Lewis | AP
Voice is the future
Vizio’s streaming business is still in its early stages. One area investing in is voice control to make it easier for consumers to navigate, buy and work with other smart home products. Between 2018 and 2019, Vizios SmartCast was integrated into Amazon Alexa as well as offers from Google and Apple, “so that our smart TVs can work together with all three important voice assistants”.
Vijay Balasubramaniyan is closely monitoring the development of voice control in smart TVs. He is the CEO of Pindrop, which develops security software for voice communications, and partnered with TiVo earlier this year to provide voice control after TiVo left Alexa.
While he hasn’t had conversations with Vizio, Balasubramaniyan is experimenting with the entire industry experimenting with making speech not only a function of turning on the TV and switching between apps and shows, but also a useful way of monetization improve.
“Between being able to do better advertising and doing voice commerce on television, these are two increasingly important areas that each of these smart TV manufacturers are aggressively looking into,” said Balasubramaniyan.
SEE: Netflix remains a major selling point for smart TVs