Vizio shares fell on their first day of trading after going public, WSJ reports.
Why It Matters: The very early returns on Vizio say one thing — “investors may need some convincing that the television maker can successfully expand in streaming TV and digital advertising.” But Vizio’s fortunes reflect a broader trend of declining/middling performance amid streaming-TV stocks of late.
Numbers To Consider:
- The stock opened at $17.50 on Thursday, which was a 17% drop below its IPO price of $21. It closed down 9% at $19.10. Going into the IPO, Vizio had expected a price between $21 and $23 leading up to the offering.
- Other streaming-TV stocks have fallen. Roku hit $318.45 on Wednesday after being as high as $420.31 on March 1.
- Vizio’s business is dominated by TV sales. The devices made up around $1.9 billion of its $2.04 billion total net revenue in 2020.
The Business Plan: Vizio also relies on advertising sales, its TV data-licensing business Inscape and its cut of content subscriptions, purchases and rentals on its platform. Vizio’s SmartCast operating system has roughly 12 million accounts in the U.S., accounting for “53% of time spent among Vizio TV users in the fourth quarter, compared with 35% for traditional linear TV and 6% for connected streaming devices from companies such as Roku Inc. and Amazon.com Inc.”
- Vizio’s Platform+ segment saw a 133% net revenue increase in 2020 while its devices business only grew 7%.
The Next Step: Vizio is banking on an interest in streaming advertising and other recurring revenue streams, which tend to draw bigger profits.
- “Ad spending in the U.S. on internet-connected TV sets, where a vast majority of streaming occurs, is expected to total $13.41 billion this year, up from $9.03 billion in 2020, according to estimates from the research firm eMarketer.”
- But TV manufacturers are behind the curve of “established streaming-ad giants” and “traditional tv ad sellers.” Coupled with a lack of comparable public companies to benchmark Vizio against, it’s hard to predict a future for the company. (It is profitable, though.)
Vizio ($VZIO) at $19.50 per share values the company at $1.6 billion, which is 11.7x 2020 EBITDA. On the surface of it, it’s a high multiple for a company that makes very low margin hardware.
But Vizio also has an advertising component of it and could be an interesting contrarian play while the market doesn’t know about it yet. I will be researching this one for ROIC members over the next week.