Is Vizio Stock A Buy?

VIZIO Holding Corp. (VZIO) is a pioneer in the design and production of Smart TVs and sound bars, and has recently launched its own operating system, Platform+. The company generates revenue in a variety of ways, principally from sales of its hardware products, but also increasingly from the monetization of its digital assets, especially through advertising and the selling of its viewer data.

Founded in 2002, Vizio only began trading as a public company in March 2021, with an earlier effort to float the business in 2015 eventually being cancelled after a late acquisition attempt by the Chinese technology company LeEco fell through.

Vizio’s IPO this time round didn’t exactly go to plan either: the firm’s shares opened 17% below the offer price of $21 to $23 – which was valued at the low end of its projected price range – closing the day at $19.10.

Since that time, however, the company’s stock has appreciated modestly, and now sits around 25% higher.

Curiously, Vizio currently trades at a very low Price-to-Sales ratio of just 1.67 – but also sports a high year-on-year EBITDA growth of 336%. For a company in the technology space with such massive growth potential, this combination of value coupled with a large profit metric makes the stock seem, on paper, like a real steal. 

We’ll take a closer look at Vizio’s business, and assess whether the company really does offer investor’s that rare and precious thing: both a quality growth business, and an unmissable value opportunity.

Vizio CEO Vision Led To $3 Billion In Sales

Vizio is the brainchild of founder and CEO William Wang, whose vision – to turn the home into everybody’s favorite place – led him to envisage the future where the TV would be the centerpiece of every house.

By the year 2010, what had come out of this vision was a leading company making nearly $3 billion annually from TV sales alone.

In recent years the company’s revenues from device sales have dropped slightly, although it still makes about 90% of its money from its TV business. However, Vizio has begun to focus on its high-growth segments to drive cash flow, where it believes subscriptions and ad revenue on its streaming system will be a major source of income in the coming years.

Source: Unsplash

Vizio Average Revenue Per User (ARPU) Up 76%

There’s always heightened interest in a newly floated company’s first quarterly results, and Vizio’s didn’t disappoint. The firm increased its net revenues 52% to $505.7 million year-on-year, with its Platform+ growing 120% to bring in $52.2 million of that in cash.

SmartCast Active Accounts were up 57% at 13.4 million users, where SmartCast Hours also grew 70% to 3.6 billion. The company’s gross profit jumped 82% at $86.7 million, with an Average Revenue Per User (ARPU) of $14.52 also up 76%.

Other business highlights for the quarter saw Vizio ranked second-highest for TV sales in the U.S. as well as top stop for the highest sound bar sales too.

The company also won a series of awards from industry publications, including being named as Digiday’s Best Connected TV Platform and receiving the IGN Editors’ Choice Award for its OLED, P-Series Quantum X and Quantum 9 products.

In addition, Vizio was able to add another 32 free ad-supported channels to its streaming platform, further cementing its position as a major ad carrying broadcaster in the Smart TV ecosystem.

Vizio Net Income Has Tumbled Despite Sales Growth

Despite the fact that Vizio grew both revenue and gross profits over the quarter, its net income was down 64% year-on-year from $9.3 million to just $3.3 million. However, operating income for the trailing twelve-month period is at its highest for anytime during the last decade at $135 million, but its total operating expenses are still high at a little over $200 million.

On a positive note, the company’s guidance for the next quarter estimates a doubling in both its gross profits and its revenues, with an uptick in ad revenue because of an expanding inventory and CPM growth. That said, it does predict its gross margins to drop from its current level of 17.1% to somewhere in the single digit range over the coming year.

Vizio’s P/E ratio of 49.62 is a lot steeper than its Price-to-Sales multiple of 1.67, but this isn’t unusually high for a company for its kind – especially since its Platform+ segment is growing at 132% year-on-year, yet only accounts for 7% of the company’s overall revenue. If this part of the business continues expanding the way that management believes it will, the opportunity to ramp up its entire revenue stream will be huge.

Vizio Market Share Declines A Bad Omen?

Although Vizio should have benefited from the kind of pandemic tailwinds that boosted many home entertainment-based companies, the firm only saw its sales grow throughout 2020 by just 11%.

Not only that, but its share of the market has also been falling the last few years, shrinking from 30% in 2017 to just 13% in 2020. Its chief rivals in the space – such as Samsung and Sony – haven’t fared particularly well either, losing both their own share of the market too, though importantly to a lesser degree.

However, new brands have entered the space and taken large chunks of business for themselves – notably Alcatel/TCL and Hisense – and in an increasingly crowded and competitive field, some might see this as a bad omen for the future.

Is Vizio Stock A Buy? The Bottom Line

Vizio is likely a cheap stock at the moment due to its strong growth prospects and some very attractive valuation metrics.

The business is a leading name in its industry, and it enjoys a steadily growing consumer base because of its unceasing innovation in the space.

Its IPO price suffered after a general pullback in tech stocks lately, and it has yet to soar to the heights it is capable off. But a price breakout could be just around the corner, and investors would be wise to move soon for fear of losing out.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.