Vizio stock is a screaming buy after its March IPO, but the company is still flying under the radar. That won’t last much longer.
Vizio Holding Corp. (NYSE: VZIO), one of the leading smart TV manufacturers, had its IPO at the end of March, and so far, the stock is off to a pretty good start. Vizio sold 7,560,000 shares of its Class A common stock at $21 a share in March. The stock fell sharply in its first few days of trading but has since recovered to around $24 a share.
Vizio is a real company with actual revenue and cash flows, making it a standout in a year of overhyped IPOs in companies with great marketing and no profits. Vizio had revenue of $2 billion in 2020 and earned $0.56 a share for the full year.
It’s rare to see a newly public company boasting profitability right out of the gate.
While you likely know Vizio for its TVs, the company has a much more sophisticated business strategy behind the scenes.
And that’s making it an excellent growth stock for early investors…
How Vizio Makes Its Money
Vizio is more than just a devices company. In addition to its smart televisions and soundbars, the company offers Platform+. Platform+ includes the SmartCast streaming service with over 12 million accounts. SmartCast generated 12 billion SmartCast streaming hours in 2020.
Platform+ offers steaming content from all the leading streaming services, including Amazon Prime Video, Apple TV+, Disney+, Hulu, Netflix, Paramount+, Peacock, and YouTube TV.
Vizio sells ads on the Platform, and that’s the high growth part of this business.
TV and video advertising is estimated to be a market worth more than $70 billion here in the United States and over $200 billion worldwide. The connected TV advertising market, which will be Vizio’s primary market, is currently an $8 billion market that most analysts think can grow to more than $20 billion by 2025.
The Platform side of the business is expected to grow by more than 40% annually over the next several years.
That’s not to say that the devices side of the industry is going away. Vizio sells its smart TVs through several platforms, including retail and online. Its products are given strategic shelf space at the retail level at both Target Corp. (NYSE: TGT) and Walmart Inc. (NYSE: WMT), two leaders in audio/video device sales.
Most of the televisions being sold in the United States are Smart TVs today. In 2020, they were 93% of all televisions shipped. Vizio has 14% of the market right now, which puts them third behind Samsung and TCL.
Vizio sold about 7 million smart TVs last year and estimates that it can grow that part of the business at a low single-digit rate over the next few years. Every buyer is potentially a customer for SmartCast and Platform+.
In 2020, Vizio converted 65% of Smart TV buyers into SmartCast Active Accounts for 4.6 million new active accounts.
In addition to the streaming services, analysts see opportunities to develop e-sports platforms, sports betting apps, and shopping services as future additions to Platform+ revenue.
There is even talk of offering educational and exercise classes through Platform+.
Vizio is a company very much in transition. Although it is not going to stop selling Smart TVs, the plan is to continue to grow the Platform side of the business. Thanks to its outsourcing of manufacturing the TVs, its devices division has decent profit margins at right around 10%.
Platform+ margins should be spectacular at around 60%.
If the company meets analysts’ expectations of almost $1.4 billion in Platform+ revenue by 2026, operating cash flows could increase by over $800 million.
Why Vizio Stock Is a Buy Now
Vizio has been around since founder Willian Wang started building making cutting-edge televisions in 2002. For you “buy American” enthusiasts, Vizio is based in Orange County, Calif. The company also has offices in Irvine, Calif., and offices in Dakota Dunes, Dallas, Denver, Seattle, San Francisco, and New York City.
This is a solid company that is now flush with cash that should see it through any disruptions in the economy or markets for a long time. Vizio has a sound strategy of using the established devices business to help it increase market share in the higher-margin Platform+ part of the business.
The future of TV is changing every day, and we could see smart TVs become an even more significant part of our day-to-day lives, offering more opportunities for Vizio to monetize its growing active user base.
The transition to more of a 60-40 mix between the 93-7 mix last year could turn Vizio into a powerful growth stock that climbs by several multiples of the current stock price.
— Money Morning Staff
Source: Money Morning