An employee hosts a display of Vizio Inc. HDTVs at a Best Buy Inc. store in Paramus, New Jersey.
Mark Kauziarich | Bloomberg | Getty Images
Vizio became a top-selling TV company in the United States about 15 years ago by making deals with big box stores like Costco and Best Buy and selling HDTVs at discounted prices.
The company now sells more than 7 million televisions per year and generates nearly $ 2 billion in revenue from these devices.
But that’s not the story Vizio is selling to investors as he prepares to go public on the New York Stock Exchange next week.
“One of the main addressable markets that we are focusing on for our future growth is, of course, television advertising,” said Adam Townsend, chief financial officer of Vizio, at the company. online roadshow promote its IPO. “The shift of viewers from linear streaming to ad-supported streaming is important and we know that advertising dollars will increasingly follow viewers.”
While Vizio competes with Samsung, Sony, LG and TCL to bring its big screens to American homes, the competition that matters most now is from streaming providers Roku, Amazon and Google. Almost all of the growth in the TV industry has been in subscription services like Netflix, Amazon Prime Video, and Disney Plus, as well as advertisers who want to reach the millions of people who switch to traditional cable viewing.
Vizio needs people to buy their TVs, even at a low profit margin, so they can make real money using their local operating system, SmartCast. Like Roku, Amazon Fire TV, and Google TV, SmartCast provides access to most major streaming services (but not HBO Max) as well as a slew of free and paid channels.
Vizio generates revenue from advertising on its home screen and in some free content, and it gets reduced sales of Netflix and other services subscriptions when people sign up on their SmartCast TVs. SmartCast accounts jumped 61% last year to 12.2 million.
Paul Erickson, analyst at research firm Parks Associates, said that Vizio’s biggest advantage in trying to attract advertisers is that it is a popular brand with a strong retail footprint and a major presence in American homes. In a market that Samsung dominates by units sold, Vizio is consistently one of the top three suppliers.
“If you’re trying to reach a TV maker that’s reaching a big part of the market in the United States, they are definitely very present,” he said.
Vizio was founded in Los Angeles 19 years ago by William Wang, a Taiwanese immigrant who survived the crash of Singapore Airlines Flight 006 in 2000. By 2007, Wang had made Vizio the best-selling manufacturer of flat-screen televisions. In a video intended for potential investors for the IPO, Wang said he was selling Vizio’s first plasma TVs at Costco for less than $ 2,000 while competing products cost more than $ 10,000.
In 2016, Vizio launched SmartCast to run its popular TVs with its own software.
“Many brands are fighting for limited retail space,” Wang said in the video. “To stay competitive, we knew we had to find a way to derive recurring revenue from deployed TVs, which would allow us to keep TV costs low for our retailers and consumers.
Vizio took his first photo of IPO in 2015, when it was actually higher in terms of income than it is today due to rising television prices. The company pulled its IPO in 2016 after China’s LeEco offered to buy it for $ 2 billion. The agreement collapsed the following year due to regulatory complexities, and in 2018 Vizio stakes sold to Taiwanese manufacturing partners Foxconn and Innolux.
A quick glance at Vizio’s financials makes it clear why the future of the company rests on streaming.
Device revenue in 2020 rose 7% to $ 1.9 billion, but remains lower than the 2010 total. That’s because the price of TVs has fallen every year, offsetting the increase in shipments. Meanwhile, Vizio’s streaming business, or what it calls “Platform +,” grew 133% last year to $ 147.2 million.
While the platform business only accounted for 7.2% of total revenue, it generated 38% of Vizio’s gross margin, which allowed the company to quadruple its net profit for the ‘year.
Chief Revenue Officer Michael O’Donnell said in the investor presentation that the company launched its direct ad sales team just over a year ago. Brands like Campbell Soup, Guinness, Fitbit, AT&T, and Progressive spend money to reach SmartCast users in targeted ways, the same way they find relevant audiences online.
Vizio is also making his debut at major events in the advertising industry. In May, the company participates in the NewFronts of the Interactive Advertising Bureau, where publishers and online platforms present their programming, audience data and tools to media buyers. Google’s Amazon, Snap, Twitter and YouTube will also be in attendance.
An advertisement for FireTV on TeaTV.
Investors will need a lot of conviction if they are ever to value Vizio as anything other than a supplier of consumer hardware. In his updated prospectus on Tuesday, Vizio said he plans to sell shares from his IPO between $ 21 and $ 23, which would value the company at $ 4.2 billion at the top of the range.
With around 2.1 times revenue for 2021, that would bring Vizio’s business closer to former heavy-duty makers like Samsung and Sony than Roku, which currently has a price / sales multiple of 26. The particular challenge for Vizio is how ‘it needs consumers to first choose to buy its televisions, then choose to use its operating system rather than plugging in a Roku, Google, or Amazon device.
“As 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 competitor’s solutions or for other purposes, our Platform + ‘s ability to generate net income may be affected, “the company acknowledges in its prospectus.
VIZIO CEO William Wang at the LeEco and VIZIO Hollywood press conference where it was announced that LeEco had acquired VIZIO for $ 2 billion on Tuesday, July 26, 2016 in Los Angeles.
Jeff Lewis | AP
Vizio’s streaming business is still in its infancy. One of the areas he’s investing in is voice control to make it easier for consumers to navigate, purchase products, and work with other smart home products. Between 2018 and 2019, Vizio’s SmartCast integrated with Amazon Alexa, as well as offers from Google and Apple, “thus allowing our Smart TVs to work with the three main voice assistants”.
Vijay Balasubramaniyan closely follows the development of voice commands in smart TVs. He is the CEO of Pindrop, which develops security software for voice communications and in partnership with TiVo earlier this year to fuel its voice commands after TiVo Alexa Abandoned.
Although he has not had any discussions with Vizio, Balasubramaniyan said the whole industry is experimenting with how to make voice not only a function for turning on the TV and moving between apps and shows, but a useful medium. improve monetization.
“Between the ability to provide better advertising and the ability to do voice commerce on TV, these are two increasingly important areas that each of these smart TV makers are aggressively addressing,” Balasubramaniyan said.
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