Larger smart TVs drive better ARPU, engagement for Vizio, CFO says

Vizio has seen higher engagement with streaming content from consumers who purchase its large-screen television sets compared to those with smaller Vizio smart TVs in their homes, the company's chief financial executive said at a conference this week.

Speaking at the Wells Fargo TMT Summit on Wednesday, Vizio CFO Adam Townsend said the company is focused on cultivating a customer base of high-quality consumers as it draws more advertisers into its SmartCast operating system and free, ad-supported streaming (FAST) service WatchFree+.

Like other TV makers, Vizio has experienced challenges in getting new customers to buy its TV sets as additional competitors come into the marketplace with what he called "unsustainable pricing." Townsend cited industry data from earlier this year that showed most major TV manufacturers — including Vizio, Samsung and TCL — saw their market share drop slightly. Walmart's in-house electronics brand Onn, which sells Roku and Android-powered smart TVs, was the exception, he claimed.

"We kind of knew that was going to happen, because the pricing dynamics were so extreme," Townsend said, suggesting lower price points associated with competing TVs made by Walmart and some other budget brands captured consumer dollars from the pivotal Super Bowl shopping period onward.

But where Vizio excels is with larger screens, which cost more than their smaller TVs but tend to be priced lower than competing models from Samsung, LG and Sony. Customers who buy bigger TVs generate better long-term revenues for Vizio. Townsend said it sees around 30% more average revenue per user (ARPU) from customers who buy Vizio TVs that are 55 inches or larger.

The reason? Customers who buy larger Vizio TVs tend to have them in their homes for a longer period of time, and those customers watch more streaming content from WatchFree+ and services who make their apps available through Platform Plus, Townsend proffered.

"That's a really positive move, and it will show up in those metrics around monetization," he said.

While the bulk of Vizio's revenue is still attributed to TV and soundbar sales, the company's device business is quickly being outpaced by its streaming platform. Earlier this month, Vizio revealed device revenue dropped 12% to $270 million, contributing to lower overall revenue of $426 million. But its platform continued to climb, with Vizio reporting $156 million attributed to Platform+, an increase of 22%. Nearly 80% of platform revenue came from advertising.

Driving success is Vizio's long-standing approach that controlling and developing both the hardware and the software for Vizio's streaming TVs ultimately leads to a better experience for customers. To that end, he noted Vizio recently launched a new home screen that serves more-personalized content options and makes it easier for users to navigate through services.

"That was a big, dramatic change, because what that did is it made a better platform for people to search and discover content, and they're engaged with it at a higher level," Townsend said, noting the company had seen a 60% lift in promotional units from its home screen inventory.

He continued: "All of that is geared toward improving the user experience, which translates into time spent using [the platform], and then, ultimately, monetization."

But there is still more work to be done, Townsend said, adding that Vizio's engineering team has a long-term product and features roadmap for things the company is looking to launch in the future. He also said Vizio is focused on adding additional content to WatchFree+, to make it a more-compelling destination for streamers who want no-cost access to movies and TV shows.

At the same time, the company is looking for ways to grow its install base, particularly among those who are willing to buy larger-screen TVs. That is one area where Vizio has lagged over the last few financial quarters: Earlier this month, Vizio said its customer base grew to 17.9 million users with active SmartCast accounts, which are connected to its streaming TV sets. By comparison, Vizio reported 16.6 million SmartCast users during the same period last year, and 14.4 million during Q3 2021.

The relatively stagnant growth of Vizo's installation base compared to its competitors like Roku and Amazon Fire TV is perhaps one reason why the company recently announced its intention to license Vizio's streaming operating system to third-party manufacturers, which Townsend said was driven by “dynamics around the economics of the business” and a desire to “grow in the marketplace.”

"We've been working on increasing the efficiency of our operating system, for our own benefit...it needs less memory and less processing power to operate, and that allows us to reduce the build cost of our hardware," Townsend said. "We were already doing that for ourselves, but we got to a point where we could develop the software and have it be more flexible to work on other chipsets that other manufacturers use that we don't use."

He continued: "I think this idea of, hey, if we've already made this investment, and the software is in that place, and we see a developing marketplace, where there's an appetite for maybe other kinds of partnerships, perhaps partners, with folks like us that understand that connection between software and hardware and how software helps hardware perform better," Townsend offered, adding that TV partners probably found it “refreshing” to hear from people who come from the hardware DNA and who understand the challenges and dynamics of getting their hardware to perform better"

Without going into specifics, Townsend said Vizio is already having conversations with third-party OEMs about licensing its OS. When asked which partners might be more-attractive to Vizio, Townsend affirmed the company's focus on reaching higher-quality consumers who are willing to buy larger-screen TV sets might tilt them toward working with companies who are willing to license Vizio's OS for those types of TVs.

"I think we would bias toward larger, and I think that we might want to create incentives to help get more of their larger output in our direction," Townsend said.