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Post-IPO, Is Vizio A Compelling Long-Term Play?

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TipRanks
·3 min read
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After a rough week for IPOs, Vizio Holding (VZIO), which is the developer of high-definition TVs and related services, has surged to over $24 per share.

The company priced the offering at $21, which was at the low end of the range of $21 to $23. As for the first day of trading, Vizio stock plunged 7% to $19.44. The company issued 12.3 million shares – of which, insiders unloaded 4.7 million – and the lead underwriters included J.P. Morgan, BofA Securities, Wells Fargo Securities and Guggenheim Securities.

Vizio is ranked No. 2 in the North American market for smart TVs and has sold about 82 million units since inception. The company is also the developer of an operating system for TVs called SmartCast.

William Wang, who is an immigrant from Taiwan, started the company in 2002 and bootstrapped the operation (at the time, he actually survived the horrific crash of Singapore Airlines Flight 006). His vision was to “make the home everyone’s favorite place.”

This involved investing heavily in new technologies and forging many partnerships with suppliers, distributors and retailers, such as Best Buy (BBY), Walmart (WMT) and Target (TGT). Wang has also been focused on pursuing a low-cost strategy.

So, is now the time to pull the trigger? Or is it too early? Let’s take a look.

Background On Vizio

Vizio has an extensive line of products, which span various price points, capabilities, and screen sizes. Additionally, there is a set of sound bars that provide immersive experiences.

As for the software and services, these are part of Platform+, and at the heart of this is SmartCash, which allows for rich content and the integration of many applications via an easy-to-use interface. The system supports streaming apps like Amazon Prime Video, Apple TV+, Disney+, Hulu, Netflix, Peacock and YouTube TV. Vizio also has its own ad-supported platforms like WatchFree and Vizio Free Channels.

To make this work, the company has been building its own targeting systems like Dynamic Ad Insertion (DAI). The technology has gotten traction with larger brands and should provide more monetization opportunities.

In terms of the market trends for Vizio, they are definitely favorable. With the expansion of high-speed internet access, television is quickly moving beyond a linear experience.

This trend has also transformed older entertainment companies like Disney, whose streaming service has become a big growth driver and has helped it deal with the adverse impact of the COVID-19 pandemic.

What’s more, these trends are only set to ramp up. Connected TV advertising is forecasted to go from $6.4 billion in 2019 to $18.3 billion by 2024, according to eMarketer. In addition, the spending on SVOD and TVOD services is expected to increase from $18.2 billion in 2019 to $30.9 billion by 2024, based on estimates from PwC.

Conclusion

Much of the sales for Vizio comes from the hardware side of the business, which has razor-thin margins. However, the company has been focused on bolstering its Platform+ segment. Last year, revenues spiked by 133% to reach $147.2 million.

It should be noted that this was only 7.2% of revenues, but Vizio’s hardware should be a point of strong leverage.

Now this does not necessarily mean that investors should buy the company’s shares now, though, especially in light of the recent volatility in the markets. Besides, it can take time for a broken IPO to get back on track. That said, it’s probably worth it to keep an eye on Vizio stock and see how things progress with the Platform+. (See Vizio stock analysis on TipRanks)

From TipRanks’ Smart Score rating system, Vizio scores an 8 out of 10, indicating that the stock has strong potential to outperform market expectations.

Disclosure: On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.