The logic behind a possible Walmart-Vizio deal

Earlier this week, the Wall Street Journal reported that Walmart is in talks to acquire smart TV maker Vizio for more than $2 billion. For what it’s worth, I heard some rumblings about this a few days ago as well, so there seems to be something to it … but of course, there’s no guarantee that this deal will actually happen.

Still, there’s some logic behind this, at least from Vizio’s side. The smart TV maker has been looking to execute a playbook similar to Roku’s with low-margin hardware being a loss leader to grow a high-margin ads and services business. But that only works if you actually sell TVs, which Vizio has struggled with in recent years.

• Ten years ago, Vizio sold 7.1 million TVs. The company managed to hit the same number in 2020, when everyone was spending their stimulus checks, but sales fell to 5.5 million and 5.2 million devices in 2021 and 2022, respectively. (Vizio will report its FY 2023 results later this month.)

• Revenue numbers are even worse: In 2014, the company generated a total of $3.1 billion. 2022 revenue came in at just $1.9 billion.

• Ad revenue has been growing steadily, to the tune of $478 million in 2022, but that growth can ultimately only be sustained if the company adds new households.

• One way Vizio wants to do that is by licensing its TV OS, but that’s a very crowded market.

I did a lengthy interview with Vizio CEO William Wang for The Information late last year, which is worth rereading in light of this week’s news. Two things are especially noteworthy:

• Wang told me he’s still still “super pumped” to go to work everyday, but some of his answers could also be understood as a signal that he’s ready to move on. “I’m looking forward to getting a next-generation team built to take over that responsibility,” he said.  “That’s something I’m really looking forward to. More so [than] me running day to day.”

• Perhaps even more striking: Wang told me that he’s thinking about breaking with Vizio’s outsourcing strategy, and vertically integrate some of the company’s manufacturing. “I don’t see vertical deintegration work forever,” he said. “Good entrepreneurs have to adapt.”

• The latter would be a pretty big departure for Vizio, which to date has relied on contract manufacturers for all of its hardware. It’s also a response to the rise of Chinese manufacturers like Hisense and TCL, which have been able to outdo Vizio with low-cost TVs, thanks to vertical integration.

• The issue with vertical integration is that it requires capital — a lot more capital that Vizio currently has, even after the Wall Street Journal story pushed the company’s market cap up to $1.9 billion.

The big question: Does the deal make sense for Walmart? We had a pretty spirited discussion about this in the Lowpass Slack this week, with folks reminding me that Walmart is already one of Vizio’s biggest retailers, so the company knows what’s selling. Having their own TV brand could also help Walmart compete more directly with Amazon and Google, and make more money with the TVs it sells.

However, Walmart isn’t exactly known for doing services well. Case in point: The company never really knew what to do with Vudu, and eventually sold the platform off to Fandago. Whether acquiring Vizio would help Walmart to get services right the second time around is anything but certain.

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