Roth Capital lowers target on Vizio

The stock is down by half over the past 12 months, but Roth Capital Partners analyst Scott W. Searle is sticking with a “Buy” rating on smart TV company Vizio (Vizio Stock Quote, Charts, News, Analysts, Financials NASDAQ:VZIO). Searle reviewed the latest quarterly earnings from Vizio in a company note on Thursday, saying softness in TV sales going forward should be offset by growth in the company’s SmartCast TV platform services business.

Orange County, California-headquartered Vizio reported its third quarter financials on Wednesday, featuring net revenue down 26 per cent to $435.0 million and adjusted EBITDA of $16.7 million, also down 29 per cent. (All figures in US dollars.)

The company saw its market share come in as the #2 brand in smart TVs, with its 40” D-Series model standing as the #1 bestselling TV and its 50” V-Series standing at #2. Meanwhile, SmartCast surpassed 16.6 million active accounts in the Q3 and the company grew its advertising revenue by 47 per cent.

“An important motto for VIZIO has always been ‘growth meets discipline.’ Our third quarter results are a continued reflection of this as we grew our platform revenue by 49 per cent and our total company Adjusted EBITDA came in at $17 million, all of which surpassed the high-end of our guidance ranges,” said, William Wang, CEO of VIZIO, in a press release.

Searle said it wasn’t a surprise that Vizio Q3 faced a slowdown in TV unit sales, along with gross margin pressure, but the analyst also pointed to the quarter’s strong SmartCast conversions, with monetization continuing to produce platform growth of 49 per cent year-over-year. The end result was EPS and adjusted EBITDA “slightly ahead” of Searle’s expectations.

“Extrapolating these trends into 2023 (and initiating 2024 estimates) we expect continued TV Product softness offset by high-margin SmartCast monetization as WatchFree+ and Vizio Account (e-wallet) gain further momentum,” Searle wrote.

Searle said he’s maintaining a “Buy” rating despite the macro overhang and general valuation pressure on public streaming comparatives. 

“While streaming comps have come under pressure (the group trades at 2.4x EV23E sales with ROKU trading at 1.1x), Smartcast’s projected growth of ~33 per cent CAGR (2021-24E, albeit it’s declining in the outer year) combined with scale (~$141 million of 4Q22E projected sales) warrants a premium multiple for VZIO, in our opinion,” Searle wrote.

The analyst is forecasting Vizio to deliver full 2022 revenue and EBITDA of $1,826.1 million and $50.6 million, respectively, and 2023 revenue and EBITDA of $1,831.2 million and $87.8 million, respectively. 

Searle’s 12-month target of $12.50 (previously $14.00) represented at press time a projected return of 35.7 per cent.