We predicted at the end of 2023 that the home theater category was going to experience a series of earthquakes in 2024 and it would appear that we were correct.
Today, February 20, 2024 Walmart and Vizio announced they have entered into an agreement for Walmart to acquire Vizio for $11.50 per share in cash, equating to a fully diluted equity value of approximately $2.3 billion.
With the deal working its way through conclusion (there are still some regulatory hurdles to take into account), Walmart is moving into a prime position to compete with Amazon-branded Smart TVs — in addition to budget-priced models from Hisense and TCL.
It’s All About Data
However, what makes Vizio most interesting to Walmart is not their TVs, it’s their SmartCast operating system. Vizio’s smart TV interface controls what apps, ads, and shows appear on the TV’s home screen. Beneath that are mechanisms to collect data to personalize viewing experiences and serve relevant ads. Such ads are not only an ongoing revenue source from third parties, but could also become a portal into a Walmart shopping experience.
Tip: What is a Smart TV?
Now that Vizio is getting absorbed into Walmart two things will happen. A layer of product markup is eliminated and Walmart can leverage recurring ad revenue to further drive down new model pricing. The good news for consumers is that TV prices could go even lower.
Brand Recognition
Although Walmart currently sells its in-house ONN-branded TVs (that include the Roku OS) and soundbars, the Vizio brand has much wider brand recognition. Replacing a less recognized brand could alleviate consumer confusion, while also boosting Walmart’s soundbar market share.
The Wildcard
Roku is the wildcard in this TV drama. They not only make a Smart TV operating system, they license it to Walmart, TCL, Hisense and others. In addition, Roku has started making their own TVs. Walmart could buy Roku, but it would be a much more expensive purchase. Roku’s current market cap is $13 billion.
According to Parks Associates, Roku has a 25% share of the operating systems in smart TVs (both in-house and licensed TV brands that incorporate the Roku OS). Amazon has 17% with its Fire TV operating system. Vizio has 8% of the smart TV market with its new Home Screen interface, previously known as SmartCast.
TVs & Soundbars
Vizio is currently the biggest-selling TV brand in Walmart’s online and retail locations. Vizio’s TV line includes LED/LED and QLED TV offerings that are higher-end than Walmart’s in-house ONN series, although still occupying the budget-priced TV landscape. Vizio also includes an OLED TV model in its line-up. Whether that would continue remains to be seen.
Absorbing Vizio into its consumer electronics infrastructure would definitely increase Walmart’s presence in the AV market.
- TV Ownership: According to Statistica, Vizio currently holds the number three position with 11% market share.
- Soundbar Ownership: According to several reports on soundbar market share, Samsung holds the number one spot and Vizio is number 2.
Acquisition Terms
- VIZIO’s Board of Directors has unanimously approved the transaction.
- VIZIO stockholders holding approximately 89% of the voting power of VIZIO’s outstanding common shares have approved the transaction. No other stockholder approval is required to complete the transaction.
- VIZIO has the right to terminate the transaction within 45 days if, subject to the terms and conditions of the merger agreement, VIZIO receives and accepts a “Superior Offer” as defined in the merger agreement.
- Upon completion of the transaction, VIZIO’s Class A common stock will no longer be publicly listed.
- Due to certain transaction-related costs associated with the acquisition, including talent retention and technology integration, Walmart expects the transaction to be slightly dilutive to EPS (Earnings per Share) in the near term.
- To finance the acquisition, Walmart plans to use cash and/or debt. The transaction is not subject to a financing condition.
- IRR for this transaction is expected to be ahead of Walmart’s reported ROI (Return on Investment).
- Following the completion of the transaction, VIZIO’s business will be reported as part of the Walmart U.S. segment.
Vizio’s Growth
Since its founding in 2002, VIZIO’s Smart TV operating system, SmartCast, have amassed over 18 million active accounts growing approximately 400 percent since 2018. VIZIO has built this customer-centric platform on its devices enabling users to stream content for free by watching ads. Building on this foundation, VIZIO created an advertising business that has continued to grow while enabling marketers to reach consumers at scale. VIZIO’s platform has over 500 direct advertiser relationships, including many of the Fortune 500. VIZIO’s Platform+ business, which consists largely of its advertising business, now accounts for a majority of the company’s gross profit.
Outlook
From Seth Dallair, Executive VP and Chief Revenue Officer, Walmart US: “There is a lot to be excited about with this acquisition,…We believe VIZIO’s customer-centric operating system provides great viewing experiences at attractive price points. We also believe it enables a profitable advertising business that is rapidly scaling. Our media business, Walmart Connect, is helping brands create meaningful connections with the millions of customers who shop with us each week. We believe the combination of these two businesses would be impactful as we redefine the intersection of retail and entertainment.”
From William Wang, CEO of VIZIO: “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,…Walmart’s approach is aligned with VIZIO’s mission and vision, and our technology will help bring a scaled, connected TV advertising platform to Walmart Connect. This transaction delivers immediate and compelling value to VIZIO stockholders and is a true testament to the hard work of the entire VIZIO team.”
Editor’s Note:
This is the first time we’ve seen a retailer purchase a TV manufacturer. Although Best Buy sells TVs through its Insignia brand and Amazon sells Fire TVs, both are likely using existing OEM suppliers.
With Walmart now owning Vizio, the retail giant can put the squeeze on the competition with even lower TV pricing. The trade-off for consumers will be enduring more ads to watch what they want to watch.
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