Vizio Swung to Q1 Loss, but 'Dual-Revenue' Model 'Paid Off,' Says Wang

Vizio’s “dual-revenue business model” and an “aggressive pricing strategy” implemented in Q1 on select TV models “paid off,” said CEO William Wang on an earnings call Thursday. Hardware revenue in the quarter fell 16% year on year to $382.9 million on an 11% decline in TV shipments, the company reported Thursday. Vizio was the second-leading TV brand in March in the U.S., he said.

Wang highlighted the Vizio 50-inch V Series TV, the top-selling 4K TV model in the U.S. during the quarter. Shipments of 43- to 58-inch TV models increased 40%, and Vizio was the No. 1 TV brand in "shelf space" at Walmart and Target, he said. “We have more to come,” said the executive, saying Vizio will continue to “deliver great value to consumers and grow our TV market share.”

TV shipments were 23% above Q1 2019 levels and 14% above the 2020 quarter, said Chief Financial Officer Adam Townsend. “We know demand was elevated by the stay-at-home orders and government stimulus programs during much of 2020 and into early 2021,” Townsend said, but Vizio expects inflated COVID-19 pandemic-related comparisons to “begin to ease” based on improved inventory and the lapping of 2021 stimulus payments. The company expects to grow TV unit shipments this year “even against expectations of a decline in the overall domestic TV market.”

Vizio’s gross profit on devices plummeted 84% to $7.9 million; its Platform+ profit jumped 89% to $65 million, representing 89% of overall gross profit in Q1, Townsend said. The trade-off of lower device margins for gaining platform accounts is an “economically favorable growth driver,” he said. Gross profit in Q1 ’21 was “elevated” during a period of “enormous demand” while supply was challenged: “You didn’t need to discount or overly market product so it actually generated above normal gross profit in our device business.” Vizio swung to a loss of $11 million from $3.4 million profit in the March 2021 quarter.

Vizio’s Platform+ streaming and ad business grew 97% in year-on-year revenue to $102.6 million, the company said. SmartCast active accounts increased 16% to 15.6 million. Of total 8.2 billion Vizio viewing hours in the quarter, 4.1 billion were on SmartCast, and SmartCast average revenue per user climbed 64% to $23.68, it said.

Off-device advertising revenue grew over 200% year over year, driven by Household Connect, which enables advertisers to target consumers on other devices based on what’s viewed on Vizio smart TVs. Townsend called Household Connect a “significant long-term opportunity” to monetize advertising beyond the TV installed base.

The company’s non-advertising revenue, including data licensing, branded buttons and content distribution fees, was up 57% vs. the prior-year quarter. Vizio expects to see a “resurgence” in non-advertising revenue, led by its "highly valuable viewership data.” Townsend said Vizio's data has become “the backbone of TV viewership measurement” in linear and connected TV with demand from TV measurement companies, ad tech firms, ad agencies and networks, and it expects data to fuel “steady growth” in overall non-advertising revenue going forward.

Responding to a question on whether Vizio plans to license its SmartCast to another TV maker as an additional source of revenue, Townsend said that’s “not the objective of the platform.”

On Jump View, which enables consumers to go between linear and streaming environments “regardless of HDMI input," Townsend said the feature shows the benefit of Vizio’s integrated system with hardware, software and “all the data flowing through” that allows it to create “cool consumer experiences.” After a beta with Fox that “went really well,” Vizio plans to push the feature more for additional opportunities in media entertainment and category expansion, he said.

The expected debut later this year of a Netflix ad-supported service tier is good news for the “entire connected TV ecosystem,” said Michael O’Donnell, chief revenue and engagement officer. The Netflix initiative will continue to “shift viewers into streaming,” bring more ad dollars to streaming overall and help reduce churn on Vizio’s platform, he said. As more partners come into streaming, “more time spent on the home screen leads to more monetization,” he said. O’Donnell called SmartCast a “next-generation cable network” that will benefit from dollars pulled out of linear TV into streaming.

On Vizio expanding its relationship with Nielsen to gain access to Inscape automatic content recognition data for local TV measurement, Townsend said initially the deal will bring about 400 local stations “into our fold.” Nielsen can now add big data from about 20 million Vizio smart TVs under the deal. Nielsen has an exclusive window, and when that is up, Vizio will have more opportunities to sell against the revenue stream, he said.

Vizio continues to lay the groundwork for the “future of television,” including e-commerce, said O’Donnell. Making it easy to communicate with the TV is key to that, and the company is making enhancements to its mobile offering and evolving its voice capabilities, he said. The company needs to have a billing system and a wallet in place and is on track to launch that product mid-summer, he said.

The company is in a strong position in an inflationary environment, due to its position as a “value brand,” Townsend said. Having “good, strong channel inventory and attractively priced product at a great quality” gives Vizio a “good hand to play,” he said.

Vizio's total revenue declined 4% in Q1 to $485 million. Guidance for Q2 Platform+ revenue is $107 million-$111 million with "with strong contributions for both advertising and data licensing." Townsend didn't give guidance for the device business. Shares closed 10.9% higher Friday at $8.40.