Q4 2021 Vizio Holding Corp Earnings Call
While we continue to fill millions of connected devices to Americans.
We also pack a lot of new programming.
Analogy.
Into every TV to improve the experiences for our new <unk>.
And existing customers.
That will grow our national sales organization that has strengthened our dual revenue business model.
We accomplished.
All of this growth.
Innovation, while maintaining a strong balance sheet and positive cash flow.
Now that is not easy.
Such achievement requires a tremendous amount of discipline and expertise.
I want to thank our team for making this happen year after year.
This year marks the 20th.
<unk> 20th anniversary.
We will continue our history of delivering quality products and.
Incredible value to customers it is.
Also our sixth year of owning both the hardware and software expenses.
And protecting the relationship between the two.
The value consumer skills will impact our product has never been greater.
Im happy to say that we.
We have maintained our market share position for full year 2021.
Top three smart TV brand.
And the number one selling some of our brands in the U S.
Going into the holiday season, we're focused our promotional efforts on the big screen high end products that drive greater engagement and <unk>.
Strategy was paid off with strong shipments for Tvs in the 50 inch and above class.
The inventory levels have normalized.
We are executing.
Questor pricing strategies to increase demand and enhance our market position.
And our products remain highly competitive in both quality and value.
The combination of our dual revenue business model and healthy inventory dynamics.
Puts us in a position of competitive strength.
Heading into 2022.
And we intend to.
To continue to leverage that strength.
Implement additional pricing tactics as we push to increase market share.
We are excited too.
The launch of our new class of devices, which went into masco as of this week.
And we'll start hitting shelves in the spring.
And a new collection is already earning awards.
Brazil was named.
Innovation Award winner.
But the consumer Technology Association for the new products.
Including.
Our M series quantum X four K HDR gaming Smart TV.
Which delivers the highest framerate it available on a picture perfect 15 screen for SaaS excellent play.
The answer is elevate by Taiwan to sandbox.
As a sleeker more affordable elevate sandbox featuring patented award winning audio technology.
And the latest version of our operating system small test was recognized for improved user experience with new voice capabilities and the updated program guidance.
But we're winning product at a great value.
The deal is all about.
We have also improved our loss pre plus service with the addition of over 5000 hours of premium.
Eva content funnel top content partners.
Disney.
Landscape.
Sony Pictures and some we are going.
And we'll continue to expand our free and premium AD supported content options.
Lastly plants is the second most watched air support of App.
On a smartass platform.
Nearly 50% of our smartphone users are Washington luxury plus.
Our data driven.
Features channels.
Our fast becoming savers and we recently added even more big main apps like.
Discovery plus <unk>.
Sling TV and the collection of apps.
<unk> networks.
So while streamed content consumption continued to grow and the streaming wars FIFA.
Could you provide a front row seat on content for everyone.
Q4 was another quarter of rapid <unk> growth with.
<unk> continues to exceed even my expectations.
The video AD business had a tremendous 2021 is not a key part of the AD ecosystem in the U S.
We significantly grew our written the ship was agency customers and grew revenue from key AD categories, including insurance retail and auto.
We expanded our offerings and new ships with media and entertainment companies that need Brazil to.
To help drive subscriptions and tuning.
As people move to <unk>.
Brands need to find those audiences and we are able to deliver them.
And with our Tvs as an anchor for brand experiences and we've been data we.
We are building a hostile connect with.
Which allow us to sell AD experiences across other devices.
We're also finding more opportunities for advertising to be part of the experience and introducing new.
Advertising units and sponsorship opportunities.
This creates more inventory for us to manage and better revenue optimization.
Our platform.
A key differentiator for video.
Our data.
Years ago before streaming became a household award we've made the investment to develop the best source up often glass level ACR data in the market.
And the benefits of our data go beyond the enhancements to our richer content and experience all screens.
Granular TV viewing data is increasingly important to the $70 billion plus linear TV industry.
And those deals with several years of experience in producing market, leading often glass level data.
Skilled.
So it's feeling a measurement revolution.
Five out of seven leading TV measurement companies are powered by video viewing data.
When combined with streaming data video viewing data supports more effective advertising investments and strengthen the historically talents TV measurement space.
And I'm excited for the future.
Additional data monetization opportunities for our shareholders.
In 2022 is our team celebrated 20.
<unk> 20th year in the TV market, we're seeing the investments in a dual revenue stream and the strategic integration of our software payout.
We expect to experience.
The expertise and the discipline that help us build a great company to propel us forward and to drive growth and the maintenance of our healthy balance sheet.
We have lots of heavy consumers that use our products at home.
Lots of happy partners.
Can use our data.
And advertising to grow their businesses.
And as we head into our second year as a publicly traded company.
We look forward to the next 20 years of delivering quality and value to consumers.
With that I will now turn the call over to Adam.
Speak to our fourth quarter 2021 results in more detail.
Thank you.
Thanks, William I'll focus my comments today on our fourth quarter performance and then discuss our outlook for Q1 full year 2021 results are available in our earnings release and the Investor presentation on our IR website.
Fourth quarter total company revenue came in at $629 million. This total represents the blend of our dual revenue model where platform plus revenue grew by 74% to $105 million, while device revenue of $524 million faced headwinds from logistical latencies and elevated product demand comparisons to Q4 2020.
Our growth in platform plus revenue was driven by advertising, which grew again by triple digits up 111% to $82 million advertising revenue consists of video impressions, both on and off device and our powerful home screen units during the quarter, we unlock even more monetize volt homescreen inventory to sell to advertisers by adding category.
Page hero banners and additional sponsorship opportunities demand remains very strong across video and homescreen as we continue to expand our relationships with AD buyers and become more known in the marketplace during.
During the quarter, we experienced strong growth across numerous add core categories, including insurance retail automotive and media and entertainment our.
Our industry, leading opted in first party viewing data remains a strong point for advertisers who are increasingly looking for better performance with their spend in fact.
Half of all ads, we run are now targeted based on our first party viewing data.
And the only way for advertisers to use this capability with guaranteed AD delivery is to work directly with our AD sales team.
Further our data is fueling the rapid growth of our key optimized product household connect this product is expanding our tam beyond our device installed base and bringing new buyers into our ecosystem as they seek impactful performance based AD solutions on digital inventory across devices, including mobile.
For the quarter advertising revenue represented 78% of total platform plus revenue.
Non advertising revenue, which today, primarily includes data licensing branded buttons on a remote controls and content distribution fees grew 7%.
The growth rate in our non advertising revenue was now and now improved in each of the past three quarters. Following a strategic shift in our data licensing model late last year. We expect this growth trajectory to continue in 2022 as our pipeline for new data deals is strong and we have several existing deals coming up for renewal.
For device Q4, smart TV shipments totaled $1 5 million, marking two consecutive quarters of sequential growth following the second quarter low.
As I'm sure you've heard from many companies market conditions remained challenging during the quarter and our team worked diligently to improve channel inventories, which had been light coming into the quarter.
As William mentioned, there worked throughout the quarter put us in a much stronger position coming into Q1, which will now allow us to be more aggressive and increase our competitiveness going forward in the past months, we have deployed aggressive promotion pricing on CTV models that we know over index in terms of engagement levels and <unk> opportunities to that end, we lowered the price on our <unk>.
Against these series a units of $299 in early February and has been the number one selling 50 inch TV in the country for the past two weeks.
Of course aggressive promotions like this have an impact on gross profit margins as indicated last quarter, we view our rapidly growing high gross profit margin platform plus business as a strategic enabler to lowering margins in television to drive customer acquisition.
For the quarter total company gross profit was $77 million with platform plus gross profit of $67 million or about 87% of the total and device gross profit of $10 million plus.
Platform plus gross profit dollars grew 39% year over year.
Total company adjusted EBITDA for the quarter was $17 million, which was well ahead of our expected range.
And finally.
Net income was a loss of $10 million or <unk> <unk> per share impacted by stock based comp expense as well as higher R&D and SG&A costs as we continue to ramp up investment in software development and overall engineering capabilities in particular.
Turning now to our key operating metrics. Our Q4 results highlight the growing success, we are experiencing in driving overall monetization.
ARPA grew at a rate to a record $21 68.
Up 67% year over the year ago period.
Our ARPA is benefiting from numerous factors, including as I mentioned earlier greater awareness of <unk> in the marketplace, which translates into expanded overall demand and more targeted campaigns, which deliver higher CPM as well as our continued enhancements to wall Street, plus that are driving improved monetization.
On a year over year basis total vizio hours grew 20% to $7 9 billion and smart cast hours grew 11% to $3 9 billion, while smart cast hours per user are still down year over year as we lap the dynamics of 2020, we did see a return a sequential growth in Q4 in absolute terms.
So far in Q1, we are seeing further strength in engagement trends for example in January smart cast hours per active account were up nearly 10% from the average during the fourth quarter, which already tends to be a seasonally strong period. This is a particularly encouraging stat on the heels of a number of recent enhancements we've made to the platform, including additional content.
Features like video on demand better search results for apps and much more.
Our active account base also continued to show solid growth with a 24% increase in 30 day active accounts ending the quarter at $15 1 million.
Let me now turn to what we expect for the first quarter.
Starting with platform plus we are realizing the benefits of our strategic planning and actions this past year and the trends we are seeing thus far indicate another strong growth year ahead.
We see continued strength in demand for our advertising inventory and expanding growth opportunities in our largest non advertising revenue source data licensing.
The market is hungry for our data and we are in a great position to serve.
Taken together, we expect Q1 platform plus revenue in the range of 90% to $95 million, we expect platform plus gross profit in the range of $57 million to $60 million, implying a margin of 63% at the midpoint of the range steady with Q4 levels.
For device.
We expect to benefit from our improved inventory position across sales channels.
As we all know certain dynamics in the market are still somewhat uncertain, but we believe we have the right products and the right strategies to increase our competitiveness. We are working closely with our retail partners on promotions and merchandising tactics to move units being particularly aggressive early in the year.
We are also working closely with our ODM suppliers to secure volume commitments at competitive pricing Lastly, we expect total company adjusted EBITDA to be in the range of a loss of $2 million to a gain of $2 million.
In summary, 2021 was a pivotal year for vizio from.
From the strategies, we deployed to the investments we've made in people systems and product. We believe we are only scratching the surface of the opportunity that lies ahead.
In 2022, we will continue to invest in additional platform enhancements for viewers advertisers and content partners alike.
We will continue to invest in talent to drive growth throughout the business.
We expect to develop new monetize are all capabilities and deploy technologies to drive greater efficiencies as.
As we've often said we believe the opportunity has extraordinary and we will continue to allocate resources to ensure we capitalize on the tremendous industry shifts ahead with that let's open up the call to questions operator.
Thank you.
If you wish to ask a question. Please press star one on your kind of thank you Pat.
If you change your mind, please press <unk>.
When speaking please ensure your line is in each of them Anthony.
Operator, let's take the first question.
The first question comes from.
No Martin.
So Laura please go ahead.
Thank you.
Let's start with EBITDA, so really strong EBITDA.
The fourth quarter it looks like most of it was your operating expenses were about $6 million lower better I guess than we'd expected, but then the EBITDA guidance for Q1 feels like it's worse.
So is there something going on between the two quarters in terms of some expense shift from Q4 to Q1 potentially.
Yes, it's.
Great question. So there is some timing dynamics with expenses such as.
Marketing as an example, as well as some of the other personnel expenses in SG&A as well as we're going through the quarter at the end of the year, but this is overall part of our broader strategy that we've been talking about in terms of being willing to bring down margins on device to increase our competitive in the market.
We're doing that more aggressively here in Q1 on the back of the fact that we now have good strong channel inventory levels now that we have units in the market. We can go out and work with our retail partners.
And merchandize and move more product to help drive customer acquisition as I mentioned in the remarks. So it's just the dynamic of that it probably eases a bit as we go through the year.
Probably the most the lowest level that we would see.
For the year, and so but as a part of that overall broader strategy I do want to emphasize that on the device side. We are expecting to have lower single digit like margins I'll remind you that the margins you saw that we had over the during the pandemic period were elevated due to some of the dynamics that we all talked about right.
High demand excessive demand pull down of inventory and no need to promote or market.
<unk> cut pricing and so it was kind of an atypical period, where we had double digit margins. Our device business that was never sustainable we were very very clear about this but this new strategic position.
Puts us in a better place to help grow and drive the flywheel into our platform plus business.
Okay and then my last question in a second to the last question is this issue of data.
William talked about the growth of data and you said that 87%.
Plus revenue alright, thank you for getting $82 million.
My question data stepped up a lot in the quarter and should we see that continue into 2022.
It did step up a bit in the quarter, but I think it's more of a driver into 2022, we've got a pipeline now has a number of.
Previous multi year deals that are coming up for renewal for the first time in a while our data has only become more valuable in the marketplace. Since we originally did those deals and then we have a few even larger deals with particularly new clients coming into that as well so.
Data as a growth driver returning in 2022 as you know we pivoted our strategy around data a year ago and that at that reduce some of the near term growth as we shifted off into a new strategy, but that strategy helped us drive growth in our advertising business as well. So that's really where the offset is now we're in a position where both sides are going to be growing.
Simultaneously.
Yes.
Good morning, Dan.
Much.
Yes, Michael.
One thing just and I think.
In the marketplace today the driver of this data licensing business is all the buzz around this next generation of TV currency products in the market. We've got incredible experience with data we have been in the market for almost eight years and Thats really important to note as the industry industry starts to shift to these new currencies Euro a lot.
Talk around NBC, you Warner Media Disney looking at new outcome based solutions, we are the core foundational currency grade data. That's powering. These these currencies in the future. So it's an important business for us moving forward.
Thanks very much.
Alright, Thanks, a lot.
Operator, let's take the next question.
The next question comes from Michael Morris with Guggenheim. Please go ahead, Michael Your line is open.
Thank you good afternoon guys.
Two questions one I just wanted to dig in a little more on the sort of unit sales and outlook side of things you talked about the stock levels being back to sort of pre pandemic.
But based on the device revenue in the quarter. It still seems that the ultimate sales are soft and then you also referenced some some.
Promotion going forward. So can you just maybe connect the dots a little bit on.
Where the bottleneck still are in terms of getting units into People's homes and also what we should read into the kind of end demand.
The promotion.
So maybe I'll start with that and then I want to ask you a question about smart what Shreveport.
Yes, Thanks, Mike.
What I was sort of articulated that we spent a lot of time during the quarter building up channel inventories that were light as we came into the fourth quarter.
So some of the latency in the system has been.
Using a bit but it's still challenging and as you are hearing from many companies. So a lot of the work was done to bring channel inventory is up to what I would call healthier more normalized levels, which means that we're in a position of about six to eight weeks of forward demand inventory, we entered the quarter at a much lower level than had bottomed out as you know back in the July time peer.
<unk>.
So that helped us move into that position.
William's comments earlier now that we have that strong position. It allows us to be more strategic with what we want to do about pricing promotions to move to move units, it's hard to deploy those kinds of tactics. When you don't have strong stock position.
And so now that we're there coming into Q1, you are starting to see us do that and I referenced. The example of the 50 inch these series TV, where we made a pretty aggressive price move on it and immediately started to sell through at a very nice level and became the number one selling 50 inch TV in the market.
Those kinds of tactics you can do once you have a strong stock position so.
We're going to continue to manage that there are still some challenges in the market. We know that we have some of our units. Some of the smaller units are still stuck on vessels and slow to get through the ports and we'll just continue to work with all of our partners to try to mitigate that as much as possible, but we are in a significantly better position coming into 2022 in terms of jet.
Inventories.
Okay. Thanks for that and then you referenced 50% of smart App users now watching the watch free plus.
Can you talk about.
How much time, they're spending or how the engagement has been trending in and I don't know if to the extent you can maybe frame how much more valuable. It is for you to time spent on the watch free plus app as compared to time spent maybe on another app where might still get an add split or something like that that isn't completely controlled by you.
Hey, Mike I'll take that so look watch free plus position before.
As the biggest growth engine for our advertising business, where we continue to invest so we're effectively made what Sri plus an unavoidable app on the platform right. We got a ton of touch points, whether it be remote NAV bar custom caris <unk>. The app itself, but also the promotion that we put behind.
<unk> plus on our platform and that enables us to drive a lot more viewers into into the service we've invested a lot in the service.
Over the past over the past year in August we made a big transition.
To bringing in a new UI to controlling more of the content experience, adding new features we most recently just added Avon or video on demand into into watch free plus so we're continuing to innovate the service, we're continuing to put put support.
Behind it from a promotional aspect and we think it's going to be the key driver for us in the future, but that entails us continuing to push up more engagement time spent within there as well as continue to generate more active users on our platform of luxury plus and.
Mike Let me just add one other point of context now when you think about the advertising portion of our <unk>. The growth of that comes from a few different factors right higher CPM more and more.
Impressions into the home screen and where people are actually spending their time, which is your question. So all time spent is not created equally as some spending time in luxury plus that's a great place for us to have them. If they're spending time in non AD supported apps that doesn't help us quite as much. So when you look at our growth in <unk>, which was up 67% year over year, our smart cast.
Hours in that same time period, rolling up 11% and our active accounts were up 24%. So it shows that the monetization is occurring because we're getting that flywheel effect of each of those components that contributed to overall ARPA. So the monetization exercise is working incredibly well at this point.
That's helpful. Thanks, a lot guys I appreciate it.
You bet.
Operator, let's take the next question.
We now have a question from Steven Sai Please.
Please go ahead Nick.
Hey, guys.
Great platform plus results create platform plus guide.
I did want to dig in on some of the hours here. So vizio hours increased 20% year over year smart cast hours increased 11%, so that penetration rate of smart gas falls to 48, 7%, which is lower than the results you've had over the last year. So I guess I would've.
Expected higher penetration rate here, given all the new streaming services.
Just added late third quarter all throughout the fourth quarter. So just wondering if you could help me understand.
Some of the discrepancy in that spot and maybe you'd be willing to provide any details on those non smart cast vizio hours, what specifically are the sources that make up that 51% and I imagine it's cable effusive players Stakes and dongles.
As to video game systems, but maybe you'd be willing to size some of that was up for us.
Yes, sure, yes interesting dynamic look we're coming off of a couple of years of pretty atypical behavior right with the pandemic and the lack of original content coming from the traditional linear.
Content providers, so it's hard to know exactly what normal is.
Into the content, where we monetize invest that's what's going to contribute to our <unk> growth more than ours by itself. So that's an important dynamic and we're using our home screen, we're using our data to drive people into and using search results to drive people into the content, where we can both meet their needs are what they are looking for and monetize for ours.
So we'll continue to.
Back in the peak during the pandemic.
At smart cast hours as a percent of total was about 52% it's come down a few.
A few quarters, so again I don't know.
We're bringing a great value proposition to the consumer.
Whenever inputs that they won and we benefit.
But from them from a data standpoint from an overall active monetization standpoint.
Great and then.
Wants to have their own television.
So I'm just wondering if you could maybe just take some time to talk about in your mind.
The advantages.
The unique advantages that you guys have by owning both the operating system software.
The smart TV hardware.
In the.
Okay. Thanks.
Yes, good question.
Hi.
I can't imagine anybody who want to build a power with building software these days.
Today.
This is the Iot world both.
Both.
To impress them to maximize.
<unk> consumer experience.
<unk>.
Again, we've been doing.
<unk> TV for almost 20 years now and I think we're almost out of market with paid allow us listen a lot to do on them not to do.
Really don't believe in the <unk>.
Operation of Howard on software, we're here to build a final follow up on consumer.
Any kind of similar to.
In order for Us Michael similar expense legal and internal control both quality indicator together.
So we've been building up a lot of states.
On several years, but we've been working on smart TV for 11 years.
11 years ago, we actually try to operating system or somebody else.
It.
Work.
So we're going to stick to.
Our software integration integrated solution bleed.
Felipe This is the most feature for anybody who want to build smart TV.
Thanks, guys. Good luck.
Thanks, operator, let's take the next question.
Now have Cowen conference of Jpmorgan. Please go ahead with you already.
Okay.
Just hoping you could talk more broadly about the trends youre seeing in the end market certainly heard from them.
Right.
There is around.
Headwinds from inventory constrained categories. Just curious if you saw that at all and then you didn't mention off platform advertising.
And then a couple of times in the prepared remarks, so hoping you could just discuss how big is that today.
Some of this thinking that Youre doing there. Thank you.
Yes, so I'll start with kind of the categories, we're seeing look for for us.
Starting from.
At this point are smaller dollar pools on the marketplace to has talked before about we're really only two years into monetization. So we still have a huge run rate ahead of us. So today from a category standpoint media and entertainment is our large expect there to be strong momentum in this category for the foreseeable future there is always going to be new and existing.
Thing shows to promote theres always going to be the need to drive subscriptions theres, new apps coming into the market and they need us to help with audience attention share of voice new subscribers that <unk> really done a great job, especially over this past year and expanding to new pools of categories and our.
Our overall growth is really much more broad than the media and entertainment category today, and we saw that in terms of lifts in insurance and retail and automotive while there is problem in the marketplace.
Yeah.
We continue to be able to grow.
Grow these categories and we expect to continue to do that this next year, we will connect I look it is an exciting product for us.
What it does is it effectively.
Ill call it omni channel campaigns that can run across Tvs mobile desktop.
And really what that does is allows you to see an AD on TV and re message to those consumers.
So they are inside of the home or outside of the home, but it is important to us because we know most consumers arent spending a lot of time or are spending a lot of time across multiple different platforms. So.
So this allows our campaigns to be more coordinated.
And help improve the outcomes, we see effectively for our advertising partners, but it's really important because it helps us expand our Tam right. We have an incredible advertising advertising sales team in the marketplace and this gives them more and more opportunities to sell or pulse device that said in the past, we don't necessarily have a demand problem.
But for US we want to be able to generate as much supply across our on platform as well as off platform. So we can so we can deliver against that demand and our household connect has continued to expand and grow as we've invested invested more and more.
Just announced a deal with Transunion. This brings in their identity and marketplace products into our household connect platform, which already had.
Let me say that is.
The very large device graph from Verizon or Yahoo.
So we're continuing to innovate and expand on the household connect offering.
And we expect.
We expect it to be.
We see some good growth from this product.
And this next year.
Thank you very helpful.
Operator, let's take the next question.
The next question comes from Sandy.
Manhattan.
Bank of America.
Please go ahead.
Yes. Thank you.
On the device side, you've indicated your intentions to be more promotional.
What sort of growth, you're hoping to drive in TV units.
Towards this 'twenty one assuming that.
The inventory levels are better I know youre talking about driving increased promotional activity, but.
If you look at TV units.
That's in some of the lower end Tvs, where users monitors, but how should we be thinking about the absolute level or maybe growth rate off of TV units as we look into 2022 and I'll follow up.
Yes look if you look at sort of pre pandemic 2019, we shipped roughly 6 million units. Obviously, there was a surge in 2020 in the early days of the stimulus and the pandemic impact two.
2021, really took the brunt of supply chain challenges and logistics challenges right there was a.
Hangover that came into the year in terms of chip suppliers panel supplies.
Freight trucking.
Was challenged in 2021, we do think that those challenges did peak during the year and we've seen some easing.
And various elements certainly on the components side it much much better.
Logistics continues to be still a bottleneck to the to a certain extent. So we're going to continue to monitor that but I think the expectations broadly in the market, although even those challenges start to ease.
Some people are predicting mid year.
Want to make a prediction, but certainly.
Viewing it as a peak challenged year end 'twenty. One. So if you went from pre pandemic at the $6 million range up towards 7% during 2020, and then back down.
Mid 5 million units in 2021.
We certainly think that now with our channel inventories now with the strength of our product lineup the capabilities, we're bringing to the market. The features and what we've added this smart cast and our ability to promote that we think we should be able to see a return to growth in unit shipments.
Okay. That's helpful. Thank you and then.
On the platform plus side when.
When we think about the gross margins clearly there are lots of moving pieces here and I know you're investing quite heavily in the business. How should we expect the trajectory of gross margins in 2022 here in any any color you can share around.
The backend work that you've done around payments integration, how thats progressing thank you.
Sure, Yes, I mean, clearly as we expand the pie of our opportunity on the platform plus side. They are going to be revenue sources that come with a different margin profile.
For example, some of the platform stuff that Mike was talking about just by nature has a lower margin than endemic on device.
For example, home screen, which is a very very.
To drive growth in both areas to help create offsets and maintain a very strong margin.
We guided for Q1 16.
The mid 60% gross margin for the quarter consistent with Q4. So I think we're doing a nice job of finding that balance I'm not going apologize for 60 plus percent margins I think it's a really fantastic business, but what's great about where we're headed is that we're expanding the pie we're expanding the Tam that's going to generate additional total dollars.
If the margin directionally starts to edge down over time.
On dramatic, but it's a natural thing thats going to happen as the business becomes more complex and has four components to it.
One component is exactly what you are asking about is on the subscription billing side that two will have a different margin and a lower margin profile than say home screen advertising just by way of the.
The dynamics of what that business is but again, we want to be in that business. We think it increases stickiness for the consumer.
It brings an even better value prop to them, it's a great value profit and customer acquisition vehicle for our content partners. We now have content partners lined up to bring their apps to our service because we can start to fulfill the billing for them.
Premium cable is a great example of that they want that capability to launch on our platform. So all of this just comes to a collective increased value to our partners across advertising partners across content and obviously our consumers. So we're going to have to continue to work very closely.
And manage what that margin looks like.
Thank you so much.
Operator, let's take the next question.
We now have your next question from Steven.
With Wells Fargo. Please go ahead Steven.
Sure.
Yes.
Thanks, maybe first William and Adam one of your peers.
You said that they think that the connected through the operating system market is going to consolidate down to just a couple of players in the it sounds like they're going to spend a lot of money. This year in order to compete with that I was just wondering if you could give us your perspective on how you think the operating system market is going to play out and how you think about kind of cost and EBITDA margins.
As we manage through that investment process.
Yeah I'll take the.
Operating system.
Although the operating system marketing quantity this pretty close.
Well, we have Samsung, which is unlikely to switch to an amount of operating systems that have their own LG has their own.
We'll have our own <unk>.
<unk> is a roomba operating system too.
Chinese demand for Brian .
<unk> Tcl.
And also of Googles of licensing operating system so expired.
Also a reasonably Comcast that during the time.
I don't.
C.
I don't see the lack of <unk> cell phone come down through two operating system at a particular time.
It will happen probably will happen through our client, but not immediately.
So likely to be there.
Unlikely to sandbox seven operating system I'll have Mike.
Over 70% market share down to one or two immediate in the.
In the future.
The EBITDA <unk> Adam.
Yes, Steve I think one of the benefits obviously of controlling both the hardware and the software is that we have that full control over what those costs look like and so I don't think EBITDA necessarily.
Turning to EBITDA nonsense.
A function of competition on the OE side, we're really focused on is growing and developing our dual revenue model, which will over time help us improve EBITDA profitability. Obviously, we're in a period now where were transitioning from elevated EBITDA levels because of the pandemic to more normalize and then maybe even even lower as a result of being more aggressive.
But once you baseline that the high profit margin of the platform.
In our business and the growth trajectory that it's on starts to shift that back the other direction and improve overall consolidated EBITDA. So I think about it is really managing the two sides of the business to work in tandem to have that strategic benefit.
Great and then.
And then maybe just on the smart cash net ads I know, sometimes we look at that conversion rates of TV shipments net ads and that was pretty good versus what we expected in Q4.
There is some churn salaries baked into there and so I was just wondering if we could extrapolate anything out of what you saw in Q4 into 2022.
Or any other any other trend lines in there. Thank you.
Yes. This is another example, where we're managing through some.
<unk> atypical dynamics that have happened in the marketplace. So.
Active account growth is a function of.
Both sell through as well as shipments right and so we look at those two together in a normalized environment they'd be pretty close together there wouldn't be a material difference between the two but over the past two years, we have seen some divergence based on <unk>.
Dynamics in the market for example back in 2020, there was huge demand rush with the stimulus checks and everything what else. There was a drawdown so sell through outpaced shipments in that period. This year was sort of the opposite where we had the.
Different dynamic in the marketplace due to availability of inventories and so looking at that attachment rate has moved from.
North of 60%.
$19 20 down into sort of $45, 50% sort of in that range. This year what is normal.
Hard to say, but I think it's probably more in that 40% to 50% range I'll remind you newly sold Tvs, we know become active accounts to the tune of 90 plus percent. So currently sold Tvs convert very very high and we've got a big fleet that goes back to 2016, there's bound to be churn and dynamic as you mentioned.
And in that base and as that base gets bigger that churn number changes right. So that's another thing that we try to manage we're looking very closely at keeping customers engaged how do we bring the right product and then how do we bring the right content, how do we engage them and marketing to make sure that we reduce the churn over time, so that we sell more units than were able to kind of continue to do.
To improve that metric, but I think generally speaking as you look forward, we'll probably be in that.
Type of range in terms of the attachment metric.
Thanks, Adam.
Operator, we'll take the next question.
Thank you we now have Tom champion of Piper Sandler. Please go ahead, when you're ready Tom.
Thank you.
Good afternoon guys.
Adam or William I Am curious if you could just talk a little bit more about the promotions you referenced in the script and the thought process behind those.
Just curious.
If this is kind of offensive in nature to go out there and grab market share and stimulate sales or whether it's.
More defensive in nature, and responding to the dynamics youre seeing in the market just curious if you could.
Provide some some additional color and context, there and maybe a second one for micro Donald if I could.
Your advertising businesses.
Still nascent but rapidly scaling up and I'm just curious how you think about goals and priorities into into 'twenty two big picture.
Thank you.
Hey, Tom Yes, so the promotion effort is obviously a highly collaborative one right. This is one where we work really closely with our retail partners.
To find a mutually beneficial dynamics to our teams in the U S for a very very long time and has deep relationships across all of our key partners. So.
I would characterize it as probably offensive initially you never know if it's defensive until you know what other people are going to do right, but we've seen immediate benefit when we got aggressive as an example, I used earlier on our 50 inch and we're going to look at other models throughout our our lineup to new similar actions, because we know that certain <unk>.
<unk> tend to over index as I mentioned in the prepared remarks in terms of engagement and <unk> opportunities.
So we want to lean into that and because again the whole goal of it is to get more units in the home at the kind of units that help us drive ARPA and deeper engagement with our customers and so we're going to be pretty pretty tactful about what units, we want to lean into and get aggressive on and look at what that means for the overall fleet.
What competitors do we will have to see and assess and see what that looks like but we know we can move to market. We've got a great high quality product at a great attractive price and when that price comes down a little bit and get to be more in line with some of those lower cost leaders the quality to price ratio.
He is very favorably for the consumer so we're going to we're going to continue to work with our partners and make that as effective as possible.
Yeah, and I'll, just touch on the priorities and goals.
It's a relatively new business in the market as a share but I think we're from a fundamental standpoint, we still want to continue to grow our advertiser base right, which we did this past quarter, 20% and that includes over a political year.
And as last year and continue to grow the revenue per advertiser, which we did over 70% I think the way we're going to continue to do that is one continuing to be out in the marketplace not only <unk>.
Annualizing.
The value prop that we can bring from an addressable standpoint, leveraging the ACR of first party data we have in the marketplace continuing to bring new products to market like household connect that give us the ability to expand our Tam and deepen our relationships across multiple devices and then we're continuing to invest on the advertising side.
Not only in the <unk> platform and watch free plus but also in <unk>.
<unk> and our technology tools.
Behind the business. So we've built out a strong product and engineering team over the past six months that has helped US continue to increase fill rates continue to increase CPM expand household connect as we talked about but also start to build new AD tech tools and products. So.
<unk> we are.
Leveraging our first party data to provide planning tools to the markets for advertisers. We've got this great ACR data, we can help inform them what's happening in linear so they can leverage buys on our platform to drive incremental reach and frequency against their target audience. So so we will continue to invest not only in and grow.
The engagement on the platform to support the advertising sales team, but also continue to invest in AD Tech.
Got it thank you guys.
Operator, we'll take the next question.
We now have our next question from.
Thank you Karen Sheriff Kenneth Goldman Sachs Sir please.
Please go ahead.
Thank you very much my questions are about advertising revenue as you mentioned earlier on the call that <unk> increase so I was wondering if you could talk about.
The drivers were for each of the advertising revenue and sell through aggressive volume pressure.
Is it faster.
Okay grows as a percent.
Since Europe your of your platform plus dredging gross margin will be.
Coming down because of.
Where it sits compared to let's say a sponsorship of home screen advertising.
Thank you very much.
While advertiser CPM growth.
Our video inventory on device.
<unk> is continuing to grow and expand and a key component of that is now roughly 50%.
So that we're generating is coming off of leveraging our ACR data or ACR.
No first party data set enables us to.
Drive better outcomes for our customers, but also.
As in the market so that's that.
This also.
Yeah.
Prices are having tougher and tougher time getting.
Getting their money money down.
That's continuing to drive up demand.
In the streaming space of the connected TV space and more beneficial.
Sure.
Yes look and as I mentioned earlier, certainly as the pie expands as we increase.
The range of revenue opportunities, we have in our platform plus business and particularly to your question about advertising certainly theres going to be some dynamic around what that means for the gross profit margin, but we anticipate continuing to be very strong.
High margin business, obviously homescreen as a range right home screens are highest.
Margin of monetization.
On device video is going to be.
Hi, as well and then as you go off device as I mentioned earlier that that's going to come in a little bit lower margin, but that's okay, because that expands our tam and so we wouldn't want to have a broad based.
Diversified revenue mix that really helps to benefit our advertising partnerships and have them bring more and more of their budgets don't forget. These advertisers are looking for ways that coming out of the very large linear TV market.
In place, which is a $70 billion have marketplaces dollars coming into <unk> yet.
We had a digital as well if we have solutions for them, we're going to go to capture part of that pie, the albeit at slightly different margins and thats. Okay. So we want to position ourselves to be known in the marketplace as a destination for these buyers that are looking for viewers in this marketplace.
Thank you a quick follow up if I may why all the screening.
<unk> is a lower margin.
Greg quickly explain.
Yes, so why households connect is a lower margin because.
Yes.
Leveraging the data we have on our <unk>.
Screen, we are leveraging some.
On device.
On device advertising.
Now in the mobile desktop.
Tablet, we're buying out in the open marketplace are attaching to that we're attaching to these campaigns. So there is a little bit of a lower margin because we have to lay out cost.
To go to go grab that inventory.
Got it thank you very much.
Yes, you bet.
Operator, we have time for one more question.
Thank you our final question today comes from Scott Searle.
Please go ahead, when you're ready Scott.
Hey, good afternoon, thanks for taking the question.
Pete.
The overall device market is going through normalization right in terms of the.
Despite during the pandemic complicated with supply chain issues, which seem like they're normalizing certainly not normalized.
As we're getting back to that I was wondering if you could provide a little bit more clarity and visibility to the seasonal aspect in the first quarter typically down 30% or so but we're not in a normalized environment I would imagine it's less than that given the supply constraints that existed in the fourth quarter and that where two thirds of the way through I was wondering if you could give us a little bit of guidance on that front than I have.
Couple of quick follow ups.
Yes look I think the dynamic as you described it is fair I mean, the difference for US right now is that we're coming into the first quarter period with a stronger channel inventory position and thats going to allow us to do some of the tactics that I talked about earlier so.
Q1 has some promotion opportunities for example around the Super Bowl right. So we were heavy participants in that environment and we're going to look to continue to move products. So I think we should have a relatively strong hands.
Got you.
So bottomline is given given the.
Current environment less seasonality than normal should be performing a little bit better in the first quarter.
That would be my anticipation.
Okay second on the payments front billing E wallet kind of capabilities could you update us in terms of the timeline of when you expect to see more widespread commercialization on that front and how we should think about that in terms of milestone metrics and defining success in 'twenty, two and yes in terms of in terms of the roadmap.
We're on schedule.
We plan to launch our vizio.
Video tools to the marketplace.
Mid summer this.
This year right now we have the partner portal open. So we're working directly with partners to integrate them into the system. So that it's available for consumers.
Do expect that to <unk>.
Help us.
Not only generate a higher take rate, but also.
Made a better one to one relationship with our consumers, but I think what we're really excited about with Vizio account is it's kind of a foundational element or I'd say backbone of the future of TV.
And it's critical that we get Vizio video visit count onto the platform. So that we can start to build those foundations as the future of television becomes comes about.
Yes.
So I was very helpful and lastly, if I could.
Okay.
Yes, I was just going to say, it's what indications, let's take a little while to ramp that up I am excited that youre excited about us launching it as <unk>.
But it will take a little while to get the word out it will take a while for consumers to adopt it and begin to start transacting on it so to make us more important point over the long term, having that foundational infrastructure in place is really the key that allows us to expand a lot of different monetization opportunities.
Building those out over time to come but.
The back half of this year expect to.
A modest ramp up just to be conservative.
Perfect and Adam just to wrap up then.
Platform Smart cast is at scale now, but there are a lot of investable opportunities, where theres payments billing household connect other opportunities. So how would you how.
How should we think about your from a very high level, managing the EBITA and profitability in that business in 'twenty two 'twenty three I wonder if there are any metrics, we should be thinking about in terms of target EBITDA over the next couple of years. Thanks.
Look I would have said it before we are in a growth phase and there is an opportunity here to get out and grab consumers and gain households, and so we are not in what I would call EBITDA maximization mode. We're in capability investment, we're going to broaden the feature sets that we have on the units we're going to.
Device tactics to gain market share in device sales all of that collectively coming together to own and control more households, and help us drive long term growth. So we are investing in engineers, we're adding more capabilities throughout the organization to support this growth because we really think this is a transformative moment in the media space, where being in the center of that and being already in a place where.
Consumers are going around the connected integrated smart TV.
The futures are strong for us, but we need to make sure we can execute and have the right team to do it.
Great. Thank you.
Great. Thanks, Scott, Thanks, Scott and thanks, everyone for joining this concludes today's call have a great evening.
Thanks.
Thank you for joining this does conclude today's call.
You may now disconnect your lines and enjoy the rest of your day.
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