Vizio seeks to boost software business with IPO Cash
Vizio Holding Corp. is increasing investment in its software business amid growing consumer demand for streaming content.
Vizio, which was founded in 2002, derives the bulk of its revenue (about 90%) from the sale of hardware such as Internet-connected TVs and soundbars, but its software business promises higher margins. The software unit’s profit margin was 73.7% for the quarter ended March 31, significantly higher than that of Vizio’s hardware business at 10.6%.
The Irvine, Calif.-based TV seller is spending more money this year on developing its Platform+ software unit and hiring engineers and advertising staff for the unit, the chief financial officer said. Adam Townsend.
“This year is going to be a year of investment,” he said, declining to say how much money he plans to invest in the platform this year. Townsend said Vizio planned to use cash from its $257 million IPO in March to partially fund the expansion.
The Platform+ unit includes SmartCast, an operating system for its Vizio TVs that allows users to stream content from various services. Vizio generates revenue through advertisements and by selling and renting streaming content to consumers. Vizio is investing funds to refine the process by which consumers seek out and receive recommendations on what to watch, Townsend said.
Last month, Vizio said its operating expenses rose nearly 97% to $72.9 million for the quarter ended March 31, in part due to higher research and development costs. R&D expenditures totaled $9.8 million, compared to $3.7 million previously.
The company said revenue rose about 52% to $505.7 million for the quarter, compared to the year-ago period. Its net profit fell about 64% to $3.3 million.
“Growing the Platform+ business then allows us to launch those dollars and reinvest them back into the business without really dipping into the balance sheet,” said Townsend, who joined Vizio in May 2020 from the entertainment company. Showtime Networks Inc., where he was chief financial officer.
The IPO allows the company to grow its workforce and invest more in assets that generate a high return on capital, said Laura Martin, senior media analyst at Needham & Co., an investment bank. “The risk is that TV revenues will slow down in 2021 because they accelerated so much during Covid,” she said.
Vizo plans to increase its staff by about 52% to 800 this year from 2020, mostly in engineering and sales, Townsend said.
The company’s efforts to grow the software business mirror those of Roku Inc.,
which in recent years has focused on expanding its streaming advertising business, Ms. Martin said.
Roku said last month it had 53.6 million active users in the United States as of March 31, up 35% from the year-ago period. Last month, Vizio said its SmartCast had 13.4 million active US accounts during the same period, up 57% from a year earlier. Unlike Roku, Vizio has chosen not to develop its own content or expand outside of the United States at this time.
A Vizio spokesperson said the company is careful not to draw specific comparisons with other companies because its business model is different. Roku declined to comment.
The question is whether Vizio can differentiate itself from competitors by providing a better experience for streaming users, said Michael Morris, senior managing director at investment bank Guggenheim Securities LLC. “Investing in this differentiation is a way to create value as soon as the consumer decides which TV to buy,” he said.
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Appeared in the print edition of June 24, 2021 under the title “Vizio seeks to boost its software business”.