As it turns out, the rumors first floated last week are true: Walmart(NYSE: WMT)is acquiring Vizio(NYSE: VZIO). The $2.3 billion deal was confirmed on Tuesday. The purchase brings a respectable consumer electronics brand into Walmart's fold.
The thing is, the acquisition may be even more brilliant than it seems to be on the surface. Vizio brings four distinct things to the table that will make Walmart even more investment-worthy once the deal goes down.
1. A profitable advertising platform at a bargain price
You've probably heard of the brand. You may even own a Vizio television set. The company, however, may not quite be what you may think it is.
Only two-thirds of Vizio's revenue is driven by sales of electronics. The other one-third is advertising revenue driven by the SmartCast operating system installed on its smart TVs. This piece of the business is growing much faster than its device sales are, too. Through the first three quarters of last year, its ad business's revenue improved 24% to $424 million.
Perhaps even more compelling is the fact that Vizio isn't bleeding money. Although its net income of $15 million through the first three quarters of 2023 isn't exactly Earth-shattering, owning the brand isn't going to be a drain on Walmart's resources.
And for what it's worth, the analyst community was modeling more than a doubling of Vizio's per-share profit between last year and this year. With some support and tweaking, Vizio's nascent ad business could outright explode.
2. A means of expanding its own ad platform's reach
Walmart may be buying a fast-growing advertising business. But did you know it already operated one? It's called Walmart Connect, and it allows brands to pay to promote their goods being sold at Walmart.com.
The retailer's not divulged a great deal of specifics on this venture although it did point out in Tuesday's fourth-quarter report that its worldwide ad business grew 28% to $3.4 billion last fiscal year. That's not a lot compared to company-wide revenue of $648 billion. But, this digital ad business is a very high-margin one. Vizio's could be as well once it achieves enough scale.
The real leverage here, however, is the combination of these online and on-screen advertising mediums. Perhaps without even yet knowing how such a tool might work, Walmart may be able to help advertisers simultaneously feature items sold at Walmart.com as well as via Vizio's SmartCast operating system.
Don't doubt the possibility of such tech, either. Back in 2022 Walmart successfully partnered with streaming technology player Roku to make television commercials directly shoppable. The venture never got any serious traction, but it did essentially function as expected.
3. Access to 18 million Vizio users and their digital data
In this vein, note that there are nearly 18 million active users of the Vizion SmartCast operating system users that Walmart can now tap.
In the grand scheme of things, that's not a huge number. The aforementioned Roku boasts 80 million regular users of its televisions and streaming receiver boxes, making it the biggest of the bunch. Other ad-supported streaming platforms also serve plenty more people.
Nevertheless, that's 18 million people that are suddenly very, very close to Walmart in a deep way. There's no proverbial firewall between the retailer and those users' digital data as Walmart isn't working with a middleman to advertise to these people -- it is the middleman. It will be able to market to those consumers in a highly targeted way that no other advertiser or streaming middleman can.
Most of this crowd are already Walmart customers too. Roughly two-thirds of Vizio's televisions sales are reportedly made at a Walmart store or at Walmart.com. Sending them to a nearby store or getting them online isn't a particularly tall order.
4. A stronger hold on the consumer electronics market
Last but not least, owning Vizio gives Walmart an even stronger hold on the domestic as well as global consumer electronics market.
The retailer's reach on this front is twofold. First and foremost, it's a retailer of several brands' goods. While no other player holds a candle to Amazon's reach, by most measures Walmart is a respectable (albeit distant) second in terms of consumer electronics retailing. Most of these sales come from familiar third-party brands like Samsung and Sony.
The second hold Walmart has on the domestic and international consumer electronics market is as a brand name in and of itself. Although it's certainly no existential threat to Sony or Samsung, Walmart already owns a private-label line of consumer electronics called Onn. Now with the addition of Vizio, it's got another.
Stephens analyst Nicholas Zangler suggests the combination of Onn and Vizio would give Walmart control of over one-fifth of the United States' television market as well as tremendous control of the operating systems making these TVs function. That's enough to make waves for the entire industry, which already depends on Walmart as a retailing partner.
Presumably, the impending Vizio deal would also diminish Walmart's interest in featuring Roku's tech in its stores.
Don't underestimate the upside
An immediate game changer for Walmart? No. But the acquisition will certainly bolster the already bullish case for owning a piece of the world's biggest retailer.
Simply put, the lines between retailing, advertising, and media aren't just being blurred -- they're being obliterated. Market research outfit Insider Intelligence believes U.S. retailers' own advertising ventures will grow by more than 20% per year through 2027, when this sliver of the advertising market will be worth more than $100 billion within the United States alone. At that point, it will be a bigger ad business than traditional television.
Companies like Walmart and Amazon are leading the charge if only because they're the ones with deep-enough pockets to make it happen, by virtue of building enormous but well-walled-off digital ecosystems. Organizations without a commanding retail presence or a big digital platform, conversely, are largely left on the outside looking in, struggling to keep up with their more formidable competitors.
The point is, Walmart's purchase of Vizio could prove an even bigger boon than the market's currently giving the company credit for. The $2.3 billion cash deal is well worth it, given the potential of Vizio's tech and brand fully in Walmart's hands. So if you were only on the fence about owning the stock, the bullish argument just got a lot better.
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