Say No to Vizio
Vizio televisions have become synonymous with high-quality and reasonable prices, but that’s not nearly enough in 2021. Now, the company is going all-in with digital content.
The transition comes as the Irvine, Calif.-based company gets ready for an IPO this week. At roadshows, managers are showcasing the growth of Platform+, Vizio’s smart TV offering.
It makes sense that Vizio managers want to accentuate the positives. As TVs get smarter and connected to the internet, the weaknesses of traditional-linear TVs become more obvious. Consumers want to quickly access their favorite subscription video-on-demand services, like Netflix, Inc. (Nasdaq: NFLX), Disney+ or Amazon Prime. And advertisers want a way to reach those viewers.
Platform+ has an operating system that works with Amazon.com, Inc. (Nasdaq: AMZN)’s Alexa, Apple Inc. (Nasdaq: AAPL)’s Siri, and Google assistant. It also has a WatchFree™ service that lets members watch free, ad-supported digital content. That business grew to $147 million in 2020, up 133% year-over-year.
Related Post: TV Advertising Goes Next Level with Powerhouse Merger
But those gains mask sluggish growth in the hardware business. Although Vizio still has significant channel partners like Best Buy Co., Inc. (BBY), Costco Wholesale Corp. (Nasdaq: COST) and Walmart Inc. (NYSE: WMT), device revenue rose only 7% last year to $1.9 billion. Platform+ generated 38% of Vizio’s profits.
So, managers are pitching the IPO as a cheap way to play the growth-connected TV trend when in actuality, it comes with a lot of baggage. Like Roku, Inc. (Nasdaq: ROKU), Platform+ is an open, connected TV (CTV) platform digital content providers can use to reach potential customers.
Vizio collects a commission when its members sign up for Netflix, Disney+ and other subscription videos on demand (SVODs), in addition to targeted ads sold around content from its media partners and WatchFree.
Analysts at eMarketer, a digital media analytics firm, predict rapid growth for digital ads. The market reached $8.1 billion in 2020 and is expected to climb to $18.2 billion by 2024. Longer term, analysts expect that all ads will be digital. As a point of reference, the market for conventional linear TV ads is $70 billion.
So, there’s no denying this digital ad growth will help Platform+’s potential, but the best opportunities to play the trend are certainly not with Vizio.
Investors should look past the upcoming Vizio IPO and consider buying little-known Magnite, Inc. (Nasdaq: MGNI) and The Trade Desk, Inc. (Nasdaq: TTD) on this development.
Products managers Magnite and The Trade Desk are tackling CTV from opposite directions.
Magnite is a sell-side programmatic CTV ad platform. The Los Angeles-based company helps content companies and device makers sell ad inventory. Magnite announced a merger in February with SpotX, a European CTV platform. Together, the firms had $350 million in sales during 2020.
The merged company will also have inventory agreements with Discovery, Inc. (Nasdaq: DISCA), The Walt Disney Co. (NYSE: DIS) and Hulu, ViacomCBS Inc. (Nasdaq: VIAC), Fox Corp. (Nasdaq: FOX), Activision Blizzard, Inc. (Nasdaq: ATVI), fuboTV Inc. (NYSE: FUBO), Samsung, Sling TV, Roku and Vizio.
The Trade Desk is also based in Los Angeles, and it operates a programmatic ad platform, too. The difference is the target audience. The Trade Desk is a buy-side platform. Its software helps major ad buyers like The Proctor & Gamble Co. (NYSE: PG), Nike, Inc. (NYSE: NKE) and ad agencies run their digital campaigns across a growing number of connected-TV platforms and the open internet. These ads are targeted, completely programmatic and priced in real time.
It’s a big business that is growing rapidly as ad buyers shift their ad campaigns from scattershot linear TV strategies to highly relevant, measurable digital ones.
Related Post: Magnite Steals the Show
The Trade Desk reported in February that 2020 revenue reached $836 million, up 26% year-over-year, despite a sharp decline in ad spending during the middle of the year when the global pandemic shuttered stores. Gross earnings grew 34% to almost $284 million.
Investors should not lose sight of what is happening. The TV ad business is undergoing a major digital transformation from linear to connected.
Vizio managers have decided they want a piece of this transition, and it’s easy to understand why. The IPO this week is certain to be well supported as investors draw comparisons to Roku. According to documents filed with the Securities and Exchange Commission (SEC), Vizio shares trades at only 2.1 times expected 2021 sales, while Roku stock fetches 25 times.
Despite these low multiples, investors should still turn their focus to Magnite and The Trade Desk because these companies are the true beneficiaries of the digital transformation.
Jon D. Markman