TV maker Vizio goes public as the company has its sights on advertising and software
The shares of Vizio Holding Corp. closed about 9% below their share price on the first day of trading – a sign that investors may need some convincing that the television maker can successfully expand into streaming TV and digital advertising.
Vizio stock opened at $ 17.50 on Thursday, nearly 17% off its IPO price of $ 21, and closed at $ 19.10. Prior to going public, Vizio said it expects the price of its shares to be between $ 21 and $ 23.
Vizio’s decline was due to the mediocre performance of a few other streaming TV stocks over the past month. For example, shares of Roku Inc. closed at $ 318.45 on Wednesday after closing at $ 420.31 on March 1.
TV set sales dominate Vizio’s business, with the company’s device business accounting for nearly $ 1.9 billion of its total net sales of $ 2.04 billion last year.
But the company is banking much of its growth on the future of TV ad sales by making itself a must-have for marketers shifting their ad budgets to streaming video and becoming a key partner for media companies trying to promote their TV apps and expel.
In comparison, advertising sales, Inscape’s TV data licensing business, and revenue from sources such as content subscription cuts, purchases and rentals on its connected TV platform were $ 147 million.
In its online roadshow, Vizio released new numbers to underline that the smaller business unit is a key segment for the company’s future.
Among these numbers, Vizio announced to investors that its so-called Platform + segment saw net sales jump 133% over the past year; the equipment business, on the other hand, grew by 7%. Advertising accounted for 65% of Platform + net revenue in the fourth quarter of 2020, up from 20% for the same period last year.
Vizio’s SmartCast operating system, which gives set owners access to apps and other digital features, has more than 12 million active accounts in the United States, according to the company. The operating system accounted for 53% of the time Vizio TV users spent in the fourth quarter, compared with 35% for traditional linear television and 6% for connected streaming devices from companies like Roku Inc. and Amazon.com Inc.
Vizio sells some of the video ads that appear in the apps it runs on SmartCast, including all of the ad inventory on its own free, ad-supported streaming services. It also sells ads on SmartCast’s home screen that can be used by media companies, for example, to drive viewers to their content. Vizio also aims to become a major partner for media companies trying to promote and distribute their TV apps.
“We make money selling a television, and we make money every time a television is turned on,” said Mike O’Donnell, chief revenue officer, Platform + division, Vizio.
Interest in streaming advertising and other recurring income is not just about growing faster, it’s also about making higher profits.
In its presentation to investors, Vizio found that the profit margin in the Platform + division was 76% in 2020, compared to 10% in the device segment.
But Vizio is not alone in this strategy as marketers are pushing consumers to stream viewing.
U.S. advertising spending on internet-connected televisions, which host the vast majority of streaming, is projected to be $ 13.41 billion this year, up from $ 9.03 billion in 2020, according to estimates by the Research company eMarketer.
In addition to Vizio, competitors such as Samsung Electronics Co.
and LG Electronics Inc.
have also built streaming TV advertising businesses.
But TV manufacturers have a long way to go behind the mainstream streaming advertising giants and an even longer way to travel to traditional TV advertisers. A top media buying agency spends around six times as much on Amazon’s streaming TV advertising business as it does for Vizio or Samsung, according to a senior executive at the agency. The company spends about nine times as much on Roku, he said.
Vizio itself founded a new unit for the sale of ads in December 2019 and today employs more than 70 people in its platform department, including employees in the areas of sales, marketing, ad operations and customer service.
“We hit the floor with a later start than some of the other players in the room,” said Mr. O’Donnell. “It is a challenge and an opportunity because we are still at the beginning.”
William Wang, CEO of Vizio, said he is entering the public markets because they are important in building brand awareness and attracting top talent as the company looks to recruit new people to its research and development team and ad platform.
Investors also have few direct comparisons with Vizio among other publicly traded companies, Mr. Wang added. Vizio, being profitable, aims to be both a hardware and software company, with companies helping each other.
“Investors need to learn more about us and have more confidence that we can make the vision a reality,” said Wang.
– Maureen Farrell contributed to this article.
Corrections & reinforcements
Vizio Holding shares closed at $ 19.10 on Thursday, a 9% decrease from their IPO price. A previous version of this article incorrectly stated that the stock closed at $ 19.44, or about 7% below its IPO price. (Corrected March 25th)
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