Vizio delivered strong revenue and ARPU growth in Q2 2023. But unexplained weakness in Smartcast’s active account growth and the strikes threaten success in the second half of the year.
Vizio delivers solid growth in Q2 2023
Vizio continues to grow advertising revenue while others struggle. In the second quarter of 2023, its Platform+ business – which is primarily driven by advertising – delivered $142.3 million, up by 14% over the last quarter and 28% over Q2 2022. And much of the revenue went straight to the bottom line, with the Platform+ business delivering a 60% gross profit margin. The increased revenue helped drive another quarter of impressive growth in Smartcast average revenue per user (ARPU.) It grew to $30.55 (on an annual basis), up by 5% on the quarter and 19% year-over-year.
Smart TV shipments were about the same as in Q2 2021 and 2022: 1 million. And the profit margin from TV sales also remained about the same. The company is essentially selling the TV at its cost.
The solid performance from the Platform+ business drove Vizio back into the black in Q2. The company turned last quarter’s small $0.7 million loss into a $1.9 million profit.
Growth in core metrics was both good and bad
Vizio’s revenue growth is driven by two main factors: the increase in Smartcast active users and the amount of time those 
users spend in the Smartcast streaming world. Second quarter results show the two measures are headed in different directions.
Smartcast active users continue to spend more time with the “smart” side of Vizio’s TVs. The average user now spends 184 minutes (3 hours and 4 minutes) daily in the Smartcast environment, an increase of 3% over Q2 2022. The growth in Smartcast’s share of the total time Vizio’s TVs are in use is impressive. In Q2 2020, Smartcast activity accounted for 49% of the time the TVs were in use. The share has grown to 56% in the latest quarter.
The news is not quite so encouraging for the growth in Smartcast active users. 2023 has seen growth stall. The company increased active users by only 100,000 in Q2, the same increase as in Q1. It gained 5-times as many in the first half of 2022.
Why has Smartcast’s active user growth stalled?
In the Q2 2023 earnings call, Michael O’Donnell, Vizio’s Chief Revenue Officer, explained the weak growth in Smartcast active accounts:
“You’ve got to be shipping more, selling more through, gaining more at the top of the funnel to offset that churn in the base. We have seen an environment where we have shipped fewer and sell-through rates have been a little bit lower. So, the top of the funnel has not been as strong to help offset what is growth in absolute number terms in terms of the churn out of the base.”
Smartcast activations depend on Vizio TV set shipments, and Vizio TV shipments are down in 2023. In the first half of 2022, the company shipped 2.5 million sets versus 1.9 million in 2023, a decline of 24%.[i] However, the 80% decline in Smartcast activations seems much higher than expected.
Mr. O’Donnell says that new TV activations remain at 90+%, as high as they have been in the past. So, the only explanation for the dip in net Smartcast activations must be due to a big spike in Smartcast deactivation.[ii]
The prospect for future growth
Vizio has recently rolled out a major UI upgrade to many of its TVs. The improvements are intended to help users find something to watch more easily and highlight the expanded content in Vizio’s built-in FAST service, WatchFree+. If the upgrade is doing its job, there should be an increase in the time spent with Smartcast and WatchFree+. In other words, ARPU and Platform+ revenue should both get a boost. However, it might not happen in 2023.
Mr. O’Donnell says that media and entertainment companies are key advertisers with Vizio. Content producers spend heavily promoting the new fall releases throughout the Smartcast interface, particularly on the home screen. The WGA/SAG-AFTRA strikes could put a crimp in this revenue source for the rest of 2023:
“If we don’t have new shows due to the labor stoppage, that money, I think, just gets pushed out. To me, it’s more of a timing dynamic than an if…We think that money comes back to us just as soon as those shows are available and are ready to be launched.”
As to a recovery in the growth of Smartcast active accounts, Mr. O’Donnell is confident it will happen:
“I am very optimistic that the back half of the year will show stronger growth in our active accounts than we have seen in the first half so far.”
Whether growth returns to active accounts or not, Vizio ARPU and revenue could fall as the effects of the strikes take hold. But that is a problem faced by the entire TV industry.
[i] TV shipments aren’t the same as TV sales. However, retailers carefully control their inventory and will not allow a manufacturer to “stuff the channel”, shipping far more TVs they can sell. Hence, shipments are a good proxy for sales.
[ii] When a Vizio owner uses Smartcast in a month, they are counted as active. If a TV breaks or is moved to a new location where it is not used as much, it can result in Smartcast deactivation.
