John David Rainey, Walmart’s chief financial officer, pointed to ads as one of the important growth areas for Walmart this year. “Global advertising and membership” will generate 20 percent of Walmart’s operating income in its current fiscal year, Rainey said.
Analysts familiar with Vizio’s business said it’s unlikely that consumers will see more ads because of Walmart’s involvement. Streaming platforms typically optimize the number of ads based on “what will annoy people the least,” says Ari Paparo, CEO of Marketecture Media.
Instead, “the quality and the type of the ads is going to change, and probably for the better,” he said.
Consumers, analysts said, probably will see more “active” forms of advertising on Vizio, such as ads that include a QR code, bar code or “buy now” button — all tied to products on Walmart’s shelves, said Laura Martin, senior media analyst at Needham & Co.
Acquiring Vizio may be Walmart’s reaction to certain changes to the Amazon Prime platform, which have effectively meant more ads for prime members, Martin said. Walmart “has to keep up with Amazon,” she said. (Amazon founder Jeff Bezos owns The Washington Post.)
Vizio has more than 18 million active accounts on its SmartCast TV operating system, which has free, streamed content supported by ads.
“This is the part of the business Walmart hopes to grow,” said Neil Saunders, managing director of the analytics company GlobalData. “This multichannel approach gives Walmart a lot more power and reach in the world of advertising, and puts it on a more level playing field with the likes of Amazon.”
Walmart reported strong financial results Tuesday, with revenue up 6 percent to $648.1 billion for the fiscal year. The company’s operating income rose 32.2 percent to $27.1 billion.
Retailers want to boost profit margins as consumers pull back in discretionary categories. Electronics sales have been particularly stubborn, as most consumers upgraded their at-home entertainment in 2020 and 2021 during the pandemic.
TV prices fell 9.7 percent in January, compared with last year, according to the Bureau of Labor Statistics consumer price index. The average cost of a TV was $385 last year, down 11.7 percent from 2022, according to Circana. Rainey said he expects “relative weakness to persist” for technology sales.
Walmart already generates more sales for Vizio than any other retailer, Saunders said, but retailers are moving beyond selling just goods.
“At a broader level, the deal underlines that retail is becoming a much more diversified business than it used to be,” Saunders said in a statement. “There are linear linkages from retail into other industries, like advertising and fulfillment, that retailers are looking to capitalize on.”
Buying Vizio gives Walmart an ad product in which the company owns customers viewing and shopping data as well as the operating systems and hardware used to deliver the ads, analysts said.
“It keeps all of their investments within their ecosystem, so they aren’t sharing the economics or the benefit with any other third party,” said Michael Morris, senior managing director at Guggenheim Securities, adding that Google and Amazon have similar integrations for their advertising businesses.
Under the all-cash deal, Walmart would pay $11.50 per share to acquire Vizio, reflecting a 54 percent premium over the TV maker’s share price before the Wall Street Journal last week broke news of a potential acquisition.
Neither company has said whether the acquisition would result in layoffs. Martin, the Needham analyst, said it’s likely that much of Vizio’s corporate staff will be let go.
Vizio’s stock price rose more than 16 percent Tuesday. Walmart shares gained about 3 percent.
