TV Maker Vizio Goes Public as Company Sets Sights on Ads and Software

Vizio Holding Corp.’s shares closed about 7% below their IPO price on the first day of trading—in a sign that investors may need some convincing that the television maker can successfully expand in streaming TV and digital advertising.

Vizio stock opened at $17.50 on Thursday, nearly 16.7% below its initial public offering price of $21, and closed at $19.44. Ahead of its public offering, Vizio said it expected to price its shares somewhere between $21 to $23.

Vizio’s decline comes amid middling performance of some other streaming-TV stocks over the past month. Shares of

Roku Inc.,

for example, closed at $318.45 on Wednesday, after closing at $420.31 on March 1.

Sale of TV sets dominates Vizio’s business, with the company’s devices business comprising nearly $1.9 billion of its $2.04 billion total net revenue last year.

But the company is staking much of its growth on the future of TV ad sales by turning itself into a must-buy for marketers shifting their ad budgets to streaming video and becoming a key partner for media companies trying to promote and distribute their TV apps.

Its advertising sales, TV data-licensing business Inscape, and income from sources such as its cut of content subscriptions, purchases and rentals on its connected-TV platform, by comparison, generated $147 million.

In its online roadshow, Vizio presented new numbers to back up its case that the smaller business line is a key segment in the future of the company.

Among those figures, Vizio told investors its so-called Platform+ segment saw an increase in net revenue of 133% last year; its devices business in contrast grew 7%. Advertising comprised 65% of Platform+’s net revenue in the fourth quarter of 2020, up from 20% in the same period a year prior.

Vizio’s SmartCast operating system, through which set owners access apps and other digital features, has more than 12 million active accounts in the U.S., according to the company. The operating system accounted 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 sells some of the video ads that appear inside the apps it carries on SmartCast, including all of the ad inventory inside its own free, ad-supported streaming services. It also sells ads on SmartCast’s home screen, which can be used by media companies, for example, to drive viewers to their content. Vizio also wants to turn into a key partner for media companies trying to promote and distribute their TV apps.

“We make money when we sell a TV and we make money every time a TV gets turned on,” said

Mike O’Donnell,

chief revenue officer of Vizio’s Platform+ division.

The interest in streaming advertising and other recurring revenue isn’t just about the faster growth: it also delivers bigger profits.

In its presentation to investors, Vizio noted that the profit margin on its Platform+ division was 76% in 2020, compared with 10% for its devices segment.

But Vizio isn’t alone in this strategy, as marketers chase consumers into streaming viewing.

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.

In addition to Vizio, competitors like

Samsung Electronics Co.

and

LG Electronics Inc.

have also been building streaming-TV ad businesses.

But the TV manufacturers have a long way to go to catch up with established streaming-ad giants, and an even longer way to close in on traditional TV ad sellers. A top media-buying agency inside one of the major advertising holding companies, for instance, is spending roughly six times as much with Amazon’s streaming-TV ad business than it spends with either Vizio or Samsung, according to a senior executive at the agency. The firm is spending roughly nine times as much with Roku, he said.

Vizio itself formed a new unit to sell ads in December 2019 and now employs more than 70 people in its platform division, including sales, marketing, ad operations and client services staffers.

“We hit the ground with a later start than some of the other players in the space,” Mr. O’Donnell said. “It’s a challenge and an opportunity in the fact that we are still in the early days.”

Vizio Chief Executive

William Wang

said he is tapping the public markets because they are important for growing brand awareness and recruiting top talent as the company seeks to hire in its research and development team and ad platform.

Investors also have few direct comparisons to Vizio among other public companies, Mr. Wang added. Vizio, which is profitable, aims to be both a hardware and software company with the businesses helping each other.

“Investors need to learn more about us and have more faith that we can execute on the vision,” Mr. Wang said.

Write to Sahil Patel at [email protected]

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