Walmart-Vizio Deal: A Potential Boon Or Bane For Roku? Analysts Sound Off Before Q4 Earnings

Retailer Walmart Inc WMT is reported to be considering an acquisition of smart television company Vizio Holding Corp VZIO. The Wall Street Journal report of deal talks had shares of Roku Inc ROKU, another smart television company, volatile on Tuesday and early Wednesday.

Here is what analysts said about the potential combination ahead of Roku’s fourth-quarter earnings report Thursday.

The ROKU, VZIO Analysts: Wedbush analyst Alicia Reese had an Outperform rating and a $120 price target on Roku.

Roth MKM analyst Scott W. Searle had a Buy rating and a $12 price target on Vizio.

JPMorgan analyst Cory A. Carpenter had an Overweight rating and a $100 price target on Roku. The analyst also had an Overweight rating and a $10 price target on Vizio.

Benchmark analyst Daniel Kurnos had a Buy rating and a $115 price target on Roku.

Piper Sandler analyst Matt Farrell had a Neutral rating and an $81 price target on Roku.

Related Link: Roku Q3 Earnings Rundown: Revenue Grows 20%, Active Accounts Jump, Shares Surge

Wedbush on Roku: The report of an acquisition of Vizio could highlight the e-commerce opportunity for Roku, Reese said in a new investment note.

"Roku and Vizio are seen as the primary competitors within Walmart's low-budget television ecosystem," Reese said. "More importantly, Roku and Vizio are connected TV advertising platforms with large amounts of consumer data."

The analyst said an acquisition of Vizio could help Walmart compete with Google, Amazon and Roku with its own connected TV advertising platform.

"The proposed deal, if consummated, would allow the United States' largest retailer to leverage TV viewership data to market its products across its ecosystems."

Resse said Roku's 76 million active accounts were the most among connected TV platforms and the company could have an opportunity given Walmart's interest in a rival.

"The proposed deal between Walmart and Vizio underscores the massive opportunity for the CTV industry to drive ad dollars away from traditional linear television to CTV."

Roth MKM on Vizio: Walmart and its Sam's Club segment make up around 45% of Vizio's sales, Searle noted.

"This could be further leveraged into Walmart's white label onn. electronics brand," Searle said.

The analyst doesn't see a large margin benefit from the combination with gross margins for Vizio products averaging under 2%.

"Walmart ad revenue has nearly crossed ad expenses, and improved reach into the come further increases the ecosystem's value to potential advertisers."

JPMorgan on Roku, Vizio: A potential tie-up between Walmart and Vizio could be positive for both companies and negative for Roku, Carpenter said in a note.  

"Walmart could accelerate VZIO Smartcast scale switching Walmart's house TV brand onn. from Roku's operating system to VZIO's SmartCast OS," Carpenter said.

The analyst said Vizio had "industry-leading TV viewership data" that could be more valuable when combined with Walmart data.

"A Walmart and Vizio tie-up would certainly be a bad outcome for Roku, making Vizio a stronger competitor and resulting in Roku losing its position as the operating system on Walmart's onn. TVs.

Carpenter said Walmart would likely be acquiring Vizio for $2 billion versus Roku's $13 billion market capitalization due to the buyout price.  

Benchmark on Roku: The report of a buyout of rival Vizio adds "another wrinkle" for Roku ahead of its fourth-quarter earnings report, Kurnos said.

Roku is set to report fourth-quarter financial results on Thursday after market close.

"We have consistently believed that sell-side expectations were sufficiently reasonable heading into the print, and that, assuming most of the aggressive buy-side rumors were more self-serving, the bar should be achievable for Roku," Kurnos said.

The analyst said Thursday's earnings report could "have plenty of fireworks."

"We still believe the risk/reward is more slanted to the upside for Roku near-term."

Piper Sandler on Roku: Walmart and Vizio combining could be negative for Roku, Farrell said.

"From our perspective, any deal would likely be a negative for Roku for a few reasons," Farrell said.

The analyst said Walmart made up a "significant portion" of Roku's device revenue, which could create a headwind for the company.

"Second, Walmart and Roku have partnered on the advertising front, particularly around shoppable ads."

Farrell said Walmart could push more resources to Vizio if it owned the company. The analyst doesn't think Walmart could move away from Roku entirely given the company's wider active account base of 76 million versus 18 million for Vizio.

"We expect to get an update on Roku's Q4 earnings call on Thursday, February after market close.”

ROKU, VZIO Price Action: Roku shares are up 0.067% to $90 on Wednesday at publication.

Vizio shares are down 2.36% to $9.52 on Wednesday at publication.

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