Vizio Holding Corp. is ramping up investment in its software business amid growing consumer demand for streaming content.
Vizio, which was founded in 2002, earns the bulk of its revenue—about 90%—from selling hardware such as internet-connected TV sets and sound bars, but its software business promises fatter margins. The software unit’s profit margin was 73.7% for the quarter ended March 31, substantially higher than Vizio’s hardware business, at 10.6%.
The Irvine, Calif.-based television seller is devoting more funds this year to the development of its software unit Platform+ and the hiring of engineers and advertising-sales employees for the unit, Chief Financial Officer Adam Townsend said.
“This year is going to be an investment year,” he said, declining to say how much money it plans put into the platform this year. Mr. Townsend said Vizio plans to use cash raised from its $257 million March initial public offering to, in part, fund the expansion.
The Platform+ unit includes SmartCast, an operating system for its Vizio TVs that allow users to stream content from various services. Vizio generates revenue through advertisements and by selling and renting streaming content to consumers. Vizio is investing funds to fine-tune the process by which consumers search for and receive recommendations for what to watch, Mr. Townsend said.
Vizio last month said its operating expenses grew nearly 97% to $72.9 million for the quarter ended March 31, in part driven by higher research and development costs. Spending on R&D totaled $9.8 million, up from $3.7 million.
The company reported that revenue grew roughly 52% to $505.7 million for the quarter, compared with the prior-year period. Its net income fell about 64% to $3.3 million.
“The growth of the Platform+ business allows us to then kick off those dollars and reinvest them back in the business without really dipping into the balance sheet,” said Mr. Townsend, who joined Vizio in May 2020 from entertainment company Showtime Networks Inc., where he was CFO.
The IPO enables the company to grow its staff and invest more in the assets that generate a high return on capital, said Laura Martin, senior media analyst at Needham & Co., an investment bank. “The risk is that TV revenue slows in 2021 because it was accelerated so much during Covid,” she said.
Vizo plans to expand its staff by about 52% to 800 this year compared with 2020, mostly in engineering and sales, Mr. Townsend said.
The company’s efforts to grow the software business mirror that of
which in recent years focused on expanding its streaming ad business, Ms. Martin said.
Roku said last month it has 53.6 million active users in the U.S. as of March 31, up 35% from the prior-year period. Vizio last month said its SmartCast had 13.4 million active U.S. accounts during the same period, up 57% from the prior-year. Unlike Roku, Vizio has opted not to develop its own content or expand outside the U.S. for now.
A Vizio spokesman said the company is careful not to draw specific comparisons to other companies because its business model is different. Roku declined to comment.
The question is whether Vizio can distinguish itself among competitors by providing a better experience for streaming users, said Michael Morris, senior managing director at investment bank Guggenheim Securities LLC. “Investing in that differentiation is a way to create value as early as when the consumer decides which television to purchase,” he said.
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