Shares of Vizio Holding (NYSE: VZIO), one of the largest TV brands in the U.S., jumped this week on news that Walmart (NYSE: WMT) would acquire the company in a $2.3 billion deal.
Vizio has historically been the largest TV brand sold at Walmart and was the second-largest seller of flat-screen TVs in the U.S. as of 2020.
In the announcement on Tuesday, Walmart said it would acquire Vizio for $11.50 a share, or approximately $2.3 billion. The stock surged last week after The Wall Street Journal reported that the two parties were in talks for a deal, but it got another bump after the news became official.
As of Thursday's close, the stock was up 15.2% for the week, according to data from S&P Global Market Intelligence.
Image source: Getty Images.
Vizio finds a partner
In the press release announcing the deal, Walmart said that the acquisition of Vizio and its SmartCast Operating System (OS) would enable it "to connect with and serve its customers in new ways including innovative television and in-home entertainment and media experiences."
Walmart sees Vizio as a way to accelerate the growth of its advertising business, Walmart Connect, which is delivering strong results as the retailer's e-commerce business grows. Vizio's advertising solutions and its OS likely make it more attractive to Walmart than the actual TV set business. That includes more than 500 direct advertiser relationships and more than 18 million SmartCast accounts, up about 400% since 2018. Its platform business, which is mostly made up of advertising, now makes up a majority of its gross profit.
Vizio CEO William Wang said: "We believe this is the ideal next chapter in Vizio's history. By bringing our capabilities and resources together, we'll drive innovation and create even more value for our customers."
Is it a smart move for Walmart?
Walmart doesn't frequently make acquisitions, but the logic behind the move seems solid. The company is focused on growing its business, which is a huge opportunity for the retail giant, given what Amazon has done with roughly $40 billion in annual high-margin revenue from advertising.
Shares of Roku, the leading connected TV advertising platform, fell sharply on the news, indicating investors believe that the Walmart-Vizio deal could shake up the industry.
Walmart blew an earlier opportunity to capitalize on the streaming revolution as it owned Vudu for 10 years but was unable to do anything meaningful with it. The Vizio deal seems to give it an opportunity to right that wrong. Keep an eye on Walmart's next moves in advertising.
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Jeremy Bowman has positions in Roku. The Motley Fool has positions in and recommends Roku and Walmart. The Motley Fool has a disclosure policy.
