Vizio Can Meet Holiday Demand but Worries About 'Continued Latency'

Port congestion and ground transportation continue to be major product fulfillment obstacles for Vizio, said Chief Financial Officer Adam Townsend on a Tuesday investor call. “The challenge continues to be port congestion, and then once it's off the ships, trucking, railing and then warehouse workers to unload and get it processed.”

On whether bottlenecks will affect Vizio’s ability to meet demand through Christmas, Townsend said, “We’re not ideally stocked, but we’re good for holiday demand.” Vizio’s channel inventories have improved “dramatically” since the July “bottom,” said Townsend, saying the company is at four weeks of “forward demand,” but that’s below the ideal six weeks of supply inventory for the holiday season.

Townsend expects a “drawdown of inventory" for purchases made through the end of the season, "and then we will spend the latter half of December into January reloading those as well.” The concern beyond the holidays is the “continued latency in the system” for shelf share and channel inventory.

Vizio is trying to absorb higher vessel and trucking costs and working with retailers to offset costs, Townsend said. “You don’t want to pass it all on to the consumer because that’s not necessarily a competitive position to be in.” The company is trying to find “balances,” he said.

Vizio is able to draw on margins from its platform business to offset thin TV profits, he said. “We are now in a place where we’re willing to give up some margin on our device side in order to stay competitive, gain shelf share and have that translate into household growth and share gains,” Townsend said. The positive trajectory of the SmartCast business gives Vizio financial flexibility it didn’t have a year ago when it was still proving what the platform business would look like, he said.

“I don’t know that it goes all the way to a loss leader,” Townsend said, but he cited the possibility of lower TV margins than the company has had in the past couple of years: “I think we might dial that down.” That’s just for TVs, he said. The sound bar category dynamic is “quite different,” with margins that are much higher to begin with. Within TVs, if Vizio can gain shelf share by securing volume commitments from retailers, and “go back to ODM manufacturers, source supply to fulfill that shelf share, that’s how we can translate into additional growth and then work with those retailers on great promotions, merchandising campaigns to promote the product, awareness, and get it into homes."

On the company’s competitive position in the marketplace, Townsend said, “Competition is nothing new to Vizio.” When the company was founded in 2002, Vizio had no share in a market that was dominated by Japanese TV companies, he said, noting the major shift that has occurred in the TV space since.

Now with Amazon and Google gaining ground on the platform side, “we’re going to watch what some of these big other companies do from a competitive standpoint, but it’s not so easy to overnight gain a ton of share in TV,” Townsend said. Some 80% of TVs today are sold in brick-and-mortar stores where Vizio has “great distribution with the largest retailers." He noted Amazon’s FireTV platform and Roku were in the market before Vizio launched SmartCast in 2016, and it has managed to bring on 14.5 million active accounts. A “coexistence can happen” with consumers having a lot of choice in smart TVs, he said.

Townsend said Vizio is trying to redefine its total available market (TAM) growth potential. “A lot of times people get very hung up on the fact that for us to grow households, somebody needs to buy one of our TVs,” he said. That would limit monetization possibilities because of the number of TVs it could sell, he said. Vizio has found solutions and partners to expand that footprint “and monetize the broader connected ecosystem."

Townsend gave the example of Vizio's partnership with Verizon Media that takes viewership data from a Vizio household and combines it with a PC or smartphone within the same household IP address. “We know the viewership data from that Vizio TV is connected to someone who owns that mobile phone,” he said. “Marrying that data together makes it much more compelling for our advertisers,” which can choose to run the same or a different ad for connected video devices in the home, he said. That allows the company “to expand our TAM beyond the installed base.”

On products in the pipeline, Townsend said Vizio is focused on TVs and sound bars now. TV is the “conduit” that drives the platform, and sound bars are the complement to the TV business. Investment is focused on enhancing picture quality, user experience and features on the platform for viewers, ad partners and content partners, he said.

Longer term, having an operating system integrated with hardware could allow the company to “tap into new use cases for what that TV is," Townsend said. Today, the smart TV is viewed as a device for streaming content, “but can it do more?” he said. “Does it have solutions around teleconferencing: Should we be doing a Zoom call on a Vizio TV instead of on my laptop?” he said. Townsend also cited health and wellness and commerce opportunities made possible by the integrated hardware and software system: “When we dream about where this can go, it certainly has potential beyond streaming."