Why Set Maker Vizio can ride the streaming boom

On television, the dongle is dead, and set makers are suddenly gaining in show business boast. Buyers of shares should consider a new


Vizio Holding
,

which completed “initial” advertising negotiations with more than $ 100 million in commitments, four times more than last year.

Let me explain. Two decades ago, before


Netflix

(ticker: NFLX) streamed, TVs looked as dumb as toaster ovens. Clunky, too: A high-end set measured 40 inches, cost several thousand dollars, and weighed almost as much as a car engine. Then came the thinner and lighter “smart TVs”, with ugly software that couldn’t be updated because few users connected their TVs to the Internet.

Step into the dongle: Small, inexpensive devices like the Amazon Fire Stick or Google Chromecast, along with Apple TV set-top boxes, gave older operating systems sleek operating systems and provided access to Netflix and more .

Today, that is changing. Only 7% of the time spent watching a Vizio (VZIO) bundle is not spent on Vizio’s own operating system. The dongles are out, in other words.

Why? Earlier this year I purchased three sets measuring 43, 50, and 75 inches. Together they cost less than half of those old 40inches, including what I paid my painter to hang the smaller ones on articulated arms. The sets connect over Wi-Fi, use a smartphone-like operating system, and come with their own free set of hundreds of streaming channels. My old streaming devices are in a bin for spare cables and connectors.

“We’ve been working on our operating system, SmartCast, for over seven years now, and we’ve invested hundreds of millions of dollars,” William Wang, founder and CEO of Vizio, tells me. “Our monetization effort really started less than two years ago. ”

This effort includes the sale of ads for the operating system and ads for Vizio’s free channel package, called WatchFree +. Paid streaming services, which are voracious for new subscribers, are a natural fit – big spenders can pop up a hit show on Vizio’s homepage, and a few get dedicated remote buttons for access. direct to their applications. Detergent and car vendors, meanwhile, can spread the word on free channels.

About these: FAST, or free ad-supported television services, are sets of channels that air shows at scheduled times, like conventional television. AVODs, or ad-supported video-on-demand services, offer free broadcasts at all times. If you don’t like these acronyms, wait – executives change them every few years. The best FASTs include ViacomCBS’s Pluto TV, Fox’s Tubi, Roku Channel, Xumo, Crackle, and free tiers of paid services like Peacock. The content is mostly TV comfort food, not big budget originals.

One of today’s favorite acronyms is ACR, or Automatic Content Recognition, which can improve advertising results. It captures pixels from viewers’ shows and compares them to a database to tell what they’re watching on any service, live or recorded. Viewers choose to sign up when they set up their TVs and choose, for example, to receive more specific show recommendations. ACR data can be associated with users’ Internet addresses to tell advertisers which websites and applications viewers have visited. Vizio bought an ACR company in 2015.

TV makers have a natural advantage in the world of FAST and ACR data because they get to users first, before apps, and because they are able to serve ads on many services. If Vizio runs the ads, for example, it can make sure that a viewer who has seen a beer pitch three times on one app won’t see it again on another app. This and the collapse of the dongle help explain why


Amazon.com

(AMZN) recently launched its own line of televisions.

Wang, born in Taiwan, who moved to the United States at the age of 12 and survived a 2000 collision with a plane on a runway that killed half of his fellow travelers, says he isn’t intimidated by confrontation with tech conglomerates.

” I entered


Costco

and told them we were gonna be the next Sony, and they made fun of me a little bit, ”Wang says. Today,


Samsung Electronics

(005930. South Korea) leads the United States for smart TVs, with nearly a third of the shares. Neck and neck in the next three spots are


TCL technology group

(000100.China), Vizio, and


LG Electronics

(066570 South Korea), which combine for just over a third.


Sony Group

(SONY) has only a few percent.

Vizio reminds BofA Securities analyst Wamsi Mohan of the


Roku

(ROKU) from several years ago. Vizio has 14 million active subscribers out of 55 million Roku. Mohan is optimistic about both.

“Content gross margin is going to overtake TV gross margin in just one year,” he says of Vizio. “And the valuation is really based on that of a computer hardware company, like Roku was four years ago.”

Roku licenses its operating system to define manufacturers; TCL, based in China, is a major partner. The company went public in 2017 at $ 14 a share and recently traded at $ 334, with a market value of over $ 44 billion. This year’s revenue is set at $ 2.8 billion, up 60%.

Vizio went public last March at $ 21 per share. It recently traded below $ 20, with a market value of $ 3.7 billion. Wall Street is forecasting revenue of $ 2.4 billion this year, up 15%.

For now, Vizio’s growth is dominated by devices. In the last quarter, device revenue fell 9% to $ 336 million. But Vizio’s other revenue, including advertising and content licensing, jumped 146% to $ 66 million.

This is the first year that the company has introduced advertisers to the streaming equivalent of advances to traditional television, where show owners introduce themselves to ad buyers. Vizio’s average revenue per user, or ARPU, which excludes hardware sales, grew 90% year-over-year, to $ 16.76 in the last quarter, and is higher than that of Roku at a similar stage of its growth. In the last quarter, Roku’s ARPU was $ 36.46.

And what is Wang watching on TV these days? Sundays are for soccer, and Apple might be happy to hear it’s on a Ted lasso tear.

Write to Jack Hough at [email protected] Follow him on twitter and subscribe to his Barron’s Streetwise podcast.



Source link

Comments are closed.