Vizio Holding Corp. (VZIO)
Did Walmart Buy $VZIO at a Clearance Price?
In our Ledger Island Spotlights, we look at companies that could be a good fit in your portfolio or worth a closer look down the road. Some of them you have heard of. Some might be new finds. Either way, you’ll always get two retail investors’ perspectives from Clint & Phil. While they don’t always agree, they work to come to a middle-ground consensus on what to do moving forward and update guidance as they continue to track the stock on the Ledger Island Watchlists. Today, they’ll be looking at Vizio Holding Corp. $VZIO.
Vizio Holding Corp. is a SMALL-CAP company founded in 2002 and began public trading on the NYSE in March 2021. In their own words from their Investor Relations webpage:
“VIZIO Holding Corporation has a mission to deliver immersive entertainment and compelling lifestyle enhancements that make our products the center of the connected home. We are driving the future of televisions through our integrated platform of cutting-edge Smart TVs and powerful SmartCast™ operating system. We also offer a portfolio of innovative sound bars that deliver consumers an elevated audio experience. Our platform gives content providers more ways to distribute their content and advertisers more tools to target and dynamically serve ads.” https://investors.vizio.com/overview/default.aspx
Clint’s Take:
Once again, the news doesn't care about the best-laid plans (see SoFi Technologies (SOFI) from 01/05/24). On Tuesday, the Walmart WMT 0.00%↑ earnings call took all the "fun" out of this Vizio VZIO 0.00%↑ piece. During the call, WMT and VZIO released press releases detailing the deal, removing speculation of things to come. In a 2.3B cash deal, WMT is buying VZIO for $11.50 a share. No shareholder vote is needed since CEO William Wang and others own 89% of the voting power (that's a 2.04B payday), and the board has already approved the merger. For the complete press release, see the link below.
So now that VZIO is fitted for its "blue vest," we can talk about what a steal WMT just pulled off. While Vizio brand TVs are the most popular among Walmart shoppers (beating WMT's in-house ONN label), the actual TV manufacturing business has lagged. It is the advertising, digital streaming platform (SmartCast) VZIO 0.00%↑ built and will retain that WMT 0.00%↑ was after. SmartCast reported 17.9M active accounts last quarter with a +22% YoY growth of $156M in Platform+ net revenue. It is a drop in the bucket for WMT earnings, but if you hold it parallel to what Amazon AMZN 0.00%↑ did four years ago, you can see the growth potential for new ad revenue and Walmart+ growth.
Now, WMT 0.00%↑ could still mess this up. Between attempts to enter digital earlier (Vudu) and other short-lived significant acquisitions ($3.3B for Jet.com in 2016, then closed down after four short years), this could be a misstep for the retail giant. But unlikely. I'm just mad I missed this one. Being late to this party hurts 4X as much since I currently have (4) Vizio TVs in the house (three of which I bought at Walmart). It was all LITERALLY staring me in the face!
This VZIO 0.00%↑ deal was an incredible bargain worthy of the Walmart "Price Buster" name. Given the rapid and potential future growth of Vizio's Program+, I expect significant strides and great numbers for WMT 0.00%↑ to be made pretty quickly. Meanwhile VZIO will sit in this $10.98 purgatory ‘til the ticker retires, and long position investors left with $11.50/share and thoughts of what could have been.
Phil's Take:
So, the Walmart WMT 0.00%↑ acquisition makes this a hard stock to analyze "free-standing." When I look at a stock, I'm looking for long-term value. A cash offer would mean buying VZIO 0.00%↑ stock with a cap already set at $11.50/share, which is an exercise in futility. This deal, as opposed to the Liberty Media and Sirius XM Holdings SIRI 0.00%↑ acquisition we spotlighted a few weeks ago, will not result in a new stock with room for future profit.
The $2.3B "offer" means that $WMT will buy each of the approx. 197.2M outstanding shares at a premium of roughly $0.52 over the current $10.98 trading price for $VZIO today doesn't make any sense. But I am thinking of VZIO 0.00%↑ as a company that sells advertising opportunities, and that revenue will only grow for WMT 0.00%↑ . So, from a WMT stockholder's perspective, this was quite a bargain.
As consumers continue to move away from cable, advertising from so-called "connected TVs" will only expand. Insider Intelligence estimates that connected TV ad spending will reach $29.3 billion in 2024, a 17% increase from the previous year. This value is why, while VZIO 0.00%↑ lost $3.3 million selling TVs last quarter, its ad revenue propelled it to a $97M gross profit. All that happened in a consumer market where people were not spending money on electronics. Net revenue is down slightly from last year, and you're not thrilled with a company that technically loses money selling TVs, but the streaming numbers are impressive. Platform+ (think streaming) net revenue is up 22% from last year. Active accounts are up 8%, hours viewed are up 21%, and average income is up 14%. This all adds up to a big win for WMT 0.00%↑ in the coming months, not years.
Moving Forward:
While the outlook for VZIO's current stockholders might be rosy (and it pains us to say it), we have missed the boat here. The maximum gains for this stock have already been had during the run-up on the news and speculation of the purchase. WMT's $2.3B cash offer ($11.50/share) is all there is, and nothing is left to be had after that. Therefore, we are placing VZIO 0.00%↑ in the "Backburner" watchlists. For those who invested in VZIO early on (especially nearer to its 52-week low of $4.82), you are definitely in the right position. For those of us on the outside looking in? Not so much. The only possible reason VZIO becomes a viable investment again is:
VZIO receives a "superior offer" within 45 days.
The deal doesn't go through for regulatory reasons.
In these two cases, VZIO 0.00%↑ offers some upside from where it is currently sitting and is worth another look.
The REAL lesson to remember here is that by the time the news is on the street, odds are the deal is already done, so only buy on similar future rumors and reports cautiously.
*Note: We believe Walmart buying Vizio to be a "domino acquisition," causing similar deals or restructuring in the streaming, advertising, and possibly retail sectors. Pay special attention to Roku ROKU 0.00%↑ , Target TGT 0.00%↑ , Paramount PARAA 0.00%↑ , and Amazon AMZN 0.00%↑ in the coming months.
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