Vizio Holding Corp (VZIO) 2023 Q3 法說會逐字稿

Good afternoon, and welcome to VIZIO's Q3 '23 Earnings Call. I'm Michael Marks, Director of Investor Relations. Joining me for today's discussion are William Wang, our Founder and CEO; and Adam Townsend, our CFO. Also joining us for the Q&A portion of today's call is Mike O'Donnell, our Chief Revenue and Strategic Growth Officer.

Please note that in addition to our earnings release and today's remarks, a slide presentation can be found on our Investor Relations website at investors.vizio.com.

I will refer you to the third slide in the presentation and remind you that certain statements made on this call, including certain statements about our expected fourth quarter results, advertising relationships and partners, product rollouts and functionality and future customer demand for our products are forward-looking statements that involve risks and uncertainties. These risks and uncertainties that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC and our press release that was issued this afternoon. We undertake no obligation to revise any statements to reflect changes that occur after this call, except as required by law.

During the call, we also refer to non-GAAP financial measures, including adjusted EBITDA in certain operational and financial metrics. Reconciliations to the most comparable GAAP measures for non-GAAP financial information discussed on this call as well as further information related to guidance, definitions and metrics can be found in our earnings release, which is on the Investors section of our website. Note that our quarterly comparisons and today's remarks will be made on a year-over-year basis and all metrics reported on today's call will be for Q3 '23 or as of the end of Q3 2023 as applicable, unless otherwise specified.

Now I will turn the call over to William.

Thank you, Michael, and hello, everyone. Thank you for joining us today. Our third quarter results demonstrate that VIZIO's continued focus on high-quality products and innovative user experiences is driving strong gains in user engagement and platform monetization. This, in turn, is driving our continued outperformance in advertising revenue in the connected TV space. I remain exceptionally proud of our seasoned team that continues to execute well.

Despite some market uncertainty, VIZIO delivered another strong quarter with 27% growth in advertising revenue. Our growth was driven by large ad categories such as insurance, QSR, retail, and CPG. Importantly, we are delivering growth in an efficient and scalable fashion, which is reflected in VIZIO posting the third consecutive quarter of record total company gross profit margin of 22.6%.

Total company adjusted EBITDA came in above the high end of our guidance range, even as we continue to invest in expanding a multi-prong growth strategy. There's no doubt that we are seeing the fruit of these investments paying off as we have built up our platform resources across engineering, software development, and advertising tax and sales.

VIZIO has made tremendous progress in driving monetization. Over the past few years, we have learned much about user engagement and behavior trends, which informs us about TV lifetime value. Growth in engagement drives SmartCast ARPU, which grew 14% during the third quarter to a record $31.55. Just 2 years ago, this was under $20. So we have come a long way in a brief time. Yet, we believe there is still continued room for future growth given the strong consumer shift to streaming.

Given these monetization tailwinds, we are further refining our device strategy and emphasizing larger screen sizes, which tend to be the primary TV in the home. We expect these larger units will generate greater economic value over the long term. We have historically seen stronger engagement matters, such as streaming hours and lower churn with our larger TVs, which together drives higher ARPU. We believe that building a higher quality installed base and investing in the right SKUs rather than focusing on overall shipment volumes will best position us to drive sustainable growth and profitability over time.

Additionally, over the past few years, we have been continuously retooling and enhancing our operating system to unlock further growth opportunities. Through these investments, our latest version is even faster and more responsive with the improved user-friendly experience that attracts engagement and customer satisfaction. We have also reached a phase where we believe we now have the software and experience to help other TV manufacturers within their platform solutions.

For the first time, we are beginning to explore potential partnership opportunities with other TV OEMs who have been looking for alternative operating system to help grow their CTV footprint in the U.S. Our deep expertise with integrated hardware and software provides distinct potential for mutually beneficial outcomes for VIZIO and future partners. This will take some time to work through the details with potential partners. But we are excited to open up this additional growth opportunity for VIZIO.

Turning to our device segment. It should be no surprise to hear that TV environment has been hypercompetitive over the past quarters, which has had an impact on our market share. In the meantime, with financial discipline, we continue to focus on what we can control, which includes offering higher-quality TV at a price that deliver exceptional value to the consumers.

We recently rolled out our own new Quantum 4K QLED in 65-inch for impressive $499 and 75-inch for $699. For that value, consumers can experience exceptional picture quality and premium gaming features. Consumers can also elevate the personal entertainment experience with one of VIZIO's premium soundbars. (inaudible) that consumers will be hard-pressed to find another Atmos enabled soundbar for under $500.

And of course, this new TV collection comes with fast entertainment experiences right out of box. No download needed. Everything comes built in. Our consumer can experience the recently added ESPN app, including ESPN+ along with almost 200 other built in streaming apps, including our own WatchFree+. Within WatchFree+, we offer users over 290 free ad supported streaming channels and over 15,000 on-demand titles spanning a wide range of genres.

So as we look towards the future, we are excited of our new growth drivers and the opportunity we see ahead for continued growth. While VIZIO has already come a long way, I still believe we are in the early innings of what a smart TV can become. Our focus on building a quality user base through our award-winning products comes with a potential for incredible upside with the right team, the right products and the right user experience, all at the right time. I'm more excited now than ever before for VIZIO's future.

With that, I will turn the call over to Adam to review our third quarter results in more detail.

Thanks, William. Before opening the call to questions, I will take you through our third quarter results and discuss our outlook for Q4. Our third quarter results demonstrate the benefits of our strategic focus on driving improvements in the quality and engagement level across our installed base. Through this focus, we are seeing steady growth across many key metrics that we use to track the usage of and engagement with our platform. I will provide more detail on these metrics in a moment.

But first, for the quarter, total company revenue came in at $426 million, down 2%. This was through a combination of lower device revenue of 12% on lower TV unit volumes and lower average unit price. Partially offset by higher Platform+ revenue, which grew 22% on continued strength in advertising. Again, benefiting from the rapid growth in our high-margin Platform+ revenue, total company gross profit grew 20% year-over-year to $96 million. Gross profit margin expanded by 423 basis points to 22.6%. As William mentioned, this was our third consecutive quarter of record consolidated gross profit margin. Platform+ represented a new high of 37% of total revenue and over 100% of consolidated gross profit dollars.

Total adjusted EBITDA came in at $27 million, well ahead of our expectations, benefiting from more judicious price promotion on device, capitalized software development expenses and continued growth in high-margin advertising revenue. Net income totaled $14 million, up from $2 million in the year ago period. While the retail environment has presented a number of challenges this year for many, I don't want to lose sight of the financial performance we have delivered so far this year despite these challenges.

Through the first 9 months, total gross profit grew 14% with a 480-basis point improvement in gross profit margin and adjusted EBITDA grew 59%. Our advertising revenue grew 28% to over $300 million for the first time ever, and total company net income improved to $15 million from a loss of $7 million for the same period a year ago.

Now to provide some additional segment level context for the third quarter specifically, I will start with Platform+. For the quarter, Platform+ revenue came in at the top end of our expected range and gross profit exceeded our outlook. This upside was due to stronger-than-expected home screen revenue, which along with the previously mentioned capitalized software expenses also helped deliver higher-than-expected gross profit margin.

Our strong Platform+ revenue growth of 22% was driven by a 27% increase in advertising revenue. We are particularly pleased with the continued strength of our advertising business given some of the softness being seen across the broader advertising marketplace. As we have said before, we are participating in the fastest-growing part of the advertising market and continue to take share within that market. We expanded our direct advertising relationships by 20%, adding 66 net new advertisers. And the returning advertisers increased their spend with us by 29% versus the year ago period.

As we bring more content to our viewers and utilize enhanced personalization tools, as well as an improved search and discovery experience, we are seeing continued growth and engagement. Growth in time spent streaming outpaced all other sources on our TVs during the quarter. SmartCast hours, our proxy for streaming time, grew 21% to 5.2 billion hours compared to a 10% increase in total VIZIO hours.

On a per active account basis, streaming hours totaled 290, the highest quarterly level we have seen in almost 3 years. Not surprisingly, this growth in streaming time came at the expense of linear VIZIO viewing where time spent on cable declined by 6 percentage points. So taken together, SmartCast hours as a percent of total hours during the quarter reached an all-time new high of 58%. Said differently, our users are spending more time streaming through our SmartCast operating system than watching content on cable TV, broadcast, game consoles, and attached media players combined.

Our non-advertising revenue within Platform+ also showed healthy growth, up 8% to $33 million. Data and content distribution revenue growth was partially offset by a decline in button revenue due to fewer TV shipments. In Q3, our SmartCast ARPU grew 14% to a new record of $31.55. As William mentioned, we believe our strategic focus on driving a higher quality installed base will only help accelerate this metric further.

One way we aim to support this approach is through strategic unit pricing. Since we see about a 30% higher engagement level from larger-sized units, this is where we intend to concentrate our pricing investments going forward. Lastly, total SmartCast active accounts grew $1.3 million year-over-year to a new high of $17.9 million.

Turning to our Device segment. Total revenue was $270 million. TV shipments declined 8% to just over $1 million in the quarter, with our average unit price down 8% as well, compared to a 12% decline in the overall TV industry. In audio, soundbar shipments rose 19% versus the year ago period, along with an 11% increase in average unit price, aided by strong demand for our higher-end products in our lineup. With these results, we improved brand share within the sound bar category to 19.3% from 16.7% a year ago.

And finally, our balance sheet remains strong and highly liquid. We ended the third quarter with cash and short-term investments of $335 million and no debt.

So with that, let me now turn to what we expect for the fourth quarter. For Q4, we expect Platform+ revenue to come in between $162 million and $167 million, representing 20% growth at the midpoint. We expect Platform+ gross profit of $97 million to $103 million, representing a margin of 61% at the midpoint. And finally, we expect total company adjusted EBITDA in the range of $7 million to $16 million. As we head into the seasonally strong holiday season, we remain confident that we have a compelling product lineup in the market with strong channel inventory levels across the major retailers. We will focus our pricing strategies to align with sell-through of units that help to best drive our business.

2023 thus far has been a year of tremendous progress and execution against our strategy. We have transformed our financial profile, resulting in steady growth in customer engagement, our highest gross profit margin and record ARPU. As we look to 2024, we could not be more excited with the many opportunities we see ahead. From the potential for new revenue and active account growth through our operating system partnership initiatives, to the continued overall shift to ad-supported streaming, all the way to what is expected to be an all-time high in political spending, VIZIO is well positioned to continue to build on the investments and successes of 2023.

With that, let's open the call to questions. Operator?

(Operator Instructions). The first question comes from the line of Nick Zangler with Stephens.

Another solid quarter of Platform+ growth. So congrats there. Device margins, though, under incremental pressure. And I think just in general, investors are concerned about the ongoing declines in those device margins. I'm wondering at what level do you see these device margins leveling out and when that might occur? And then just for the meantime, maybe you can talk about balancing negative device margins with active account growth and your view of the lifetime value of a customer just to provide a better understanding of why you're willing to absorb negative device margins in the near term?

Yes, I'll take that. Thanks, Nick. It's Adam. Yes, I think it's really important what you said there at the end, frankly, when you think about how this model works and how we drive growth and overall economics over time and the lifetime value of a customer. To your point about device margins going negative in the quarter, look, we're trying to balance being competitive while also being disciplined.

We have been operating in a very extreme, competitive environment lately, more extreme than many of this industry have been in a long time have seen. And so we want to make sure that we are competitive, but being thoughtful about how the economics of the overall business work. And that may mean foregoing some volumes in the immediate term because we don't want to chase some of the really extraordinary pricing that we've seen.

The way I think about it is more from a system economic standpoint because you can't really think about a device business as a stand-alone business separate and apart from our platform business. They work together. We manage them together. And all of our strategies and financial approaches take that into consideration.

If you look at just on a year-over-year basis, I think the point about our gross profit margin continuing to expand and hit actually or hold a new record for us in the quarter speaks to that point. I mean on a year-over-year basis, device gross profit margin came down about 160 basis points, but we expanded total company gross profit margin by over 400 basis points. So it's working together. We think that's the right approach.

We want to focus on driving quality accounts that are going to be highly engaged. The right units for our model will drive increased profitability and economics. We're now approaching a $30 -- $32 ARPU on this population with a 60% gross margin. So when you think about a lifetime value, which was a part of your question, these highly engaged units tend to be with us for 6-plus years. And so if you run those economics out over time, a small upfront customer acquisition cost makes a lot of sense, and it's definitely going to generate a positive ROI over time.

So we're comfortable with it. We think it's the right structure. Now that we've scaled up and grown our platform business, we can deploy this in the numbers work for us.

Understood. And then you mentioned your willingness to explore partnerships with other TV OEMs and the possibility of licensing the SmartCast OS to, I guess, competing TV OEMs in the marketplace. You guys have always been so adamant about the unique combination of VIZIO hardware for -- and VIZIO software. This obviously seems to represent a strategic shift. So question is, what has changed and why now?

Yes, Nick, this is William. I'll take that question. I continue to be a firm believer in the integrated experience. And consumers continue to show their preference in a great all-in-one smart TV. You can see that to the decline of dongles on similar players. In my view, the best way to provide an exceptional user experience is to prioritize equal importance on hardware and software and make them work together seamlessly to give consumers the best possible experience.

As you know, over the past several years, we have been investing heavily in our platform and our people to deliver great products, great user experience. But as important we need to create a highly monetized flow and more flexible operating system, SmartCast. When most people think about a TV operating system, they also only think about how you support streaming apps like Disney+ or Netflix. But it's so much more than that, especially when it's designed for integration with hardware in mind.

Our software not only support great streaming experiences, but actually works directly with the hardware to make the hardware itself perform even better. One way this is done is to picture quality enhancements through our internal own software capability, we will be able to work with the best OEMs in the world and the best component manufacturers in the world to push the boundaries of the final product. This means better contrast ratio, better black level, better color accuracy, better audio, just to name a few.

At the rate we are now to control the living room (inaudible) we see a great opportunity emerging in the market where certain highly value-added OEMs are looking for deeper partnership, not simply a (inaudible) or a Window OS partnership. They want a partner that has resource or the know-how to help their product perform better at delivering improved experience. And they want a partner who can help them build better products, but not just giving up quality and rates to the bottom on price, which in long term, we all know it's unsustainable.

Most importantly, we believe we can create mutually better professional partnership, which we believe is not available in the market today. So as I mentioned earlier, well, we are already in early discussions, and this will take some time to come together, but we are very optimistic of the potential this can bring to leverage the investment, we have really made to expand our platform penetration and further scale our advertising business.

We will take our next question from Laura Martin with Needham.

I have 2. One is I'm really intrigued by the last bullet point of your press release that says you're the exclusive CTV partner of Intuit SMB Media Labs, which unlock new TAM of B2B budgets a new wave of retail media network partnerships for VIZIO. I would really like to learn more about that.

And then, Adam, for you, this EBITDA, you way overdelivered. You doubled the EBITDA number versus our estimates in the quarter, you just announced the third quarter, so up 60% year-over-year. But your guidance for the fourth quarter has the EBITDA down in the high end, down 20% year-over-year. So was there something unique that won't be recurring as before? Or are you guys going to take a bath on the TV device pricing, which is going to wipe out the EBITDA and make it be lower in 4Q? What's going on between the 60% growth in EBITDA in 3Q versus EBITDA down year-over-year in Q4 guidance?

Yes, I'll start. Thanks, Laura. It's Mike. I think we shared a little bit about this last quarter. But Intuit is launching a small business-focused retail media network. It's called SMB Media Labs. This allows advertisers to target customers, a QuickBooks, across kind of various media properties. VIZIO is the exclusive connected TV partner of that, right? It's really valuable data for us to reach small businesses. We can augment kind of our best-in-class TV data with Intuit's high-fidelity data sets.

This should continue to help us expand our partnerships in telco, in travel as well as newer categories, potentially like fintech and workplace services. I think also partnering with Intuit helps put us into retail marketing discussions, which, as you know, is a rapidly growing portion of the ad market. So we're pretty excited to be an exclusive partner with them.

Laura, it's Adam. And on the EBITDA side, there are a couple of things in the quarter to think about for this quarter. I mean, yes, I'm glad that we over delivered and it came in certainly ahead of our expectations, which is a good thing.

To your question about nonrecurring, I did comment about the benefit from capitalized software development costs. That was something that came up during the quarter. It was about $3 million of benefit to the quarter, and that will not repeat sort of going forward. That's one consideration.

For the quarter in general, we're really pleased with the advertising strength and particularly the strength on the home screen. We were bracing with the -- what challenges in the media entertainment space, we guided pretty conservatively making sure that we would capture the fact that those strikes are still underway.

And while some of those are resolved, there's still a lot of hesitation in the market. There's still -- the active strike could still be going on until just this week. And we were really pleased with the demand that still came in. And so that came in at a higher -- that comes in at a much higher margin. And so that helped bolster if you look at the Platform+ margin, particularly, you see higher than we would have normally thought or higher within our guidance range expectation there.

For Q4, Q4 is definitely -- it's a higher promotion type of period. It is the holiday season, right? We've got a number of very attractive pricing doubt in the market to be competitive during the seasonally strong period for consumers. So that's part of it. That's what's in our expectation around the guidance, and that's why you see it on a down basis because it is a higher promotion period, we will be leaning into that. It's a great time to be driving growth in active accounts around the holidays and the usual consumer demand that picks up at that time. So we try to factor all of that in.

We will take our next question from Ben Swinburne with Morgan Stanley.

Two questions. One, any help thinking about how the upfront went and how that might be impacting the fourth quarter advertising outlook into next year? And then secondly, I think, Adam, you mentioned you guys are targeting larger screen formats going forward given the higher engagement. I think I heard that right. If that's true, what are the sort of financial implications of that in terms of either investment levels or your relationships with retailers and shop space, the competitive dynamics at that higher end? Anything you can share to help us think about what that means would be helpful.

Yes, this is Mike. I'll take the upfront question. I think that, as you know, upfront have been kind of slow for everyone. But from our standpoint, we're up year-over-year already today in terms of commitments. I think we've seen increased commitments in categories like CPG, QSR, [pharma] and while I would say some of the larger upfront market has slowed this year, that kind of put us in a much better position of strength, thanks to our first-party data solutions, especially in the scatter market.

So while we are up year-over-year on the upfronts, we're seeing the scatter market is really strong right now. We talked about having 66 new advertisers this past quarter. A majority of those came for scatter. So our goal is always to ensure we have kind of a healthy baseline of committed dollars coming out of the upfront cycle. And we can close healthy upfronts with major agencies and brand partners and then still kind of grow our scatter dollars throughout -- over the course of the year, adding more of these net new brands to our platform.

So our expectation is, heading into next year, is that we will grow the upfront and with that healthy baseline, and we expect to grow significantly as we improve even more and more in the scatter market.

Yes, Ben, on the other question, we really like that larger screen size part of the market. I mean, our data supports the higher engagement and therefore, the longer and better higher customer lifetime value of those units. There's no doubt, as I mentioned, that if you look at our metrics, we're starting to see already some of the improvement in the quality and engagement metrics by the outpacing growth in streaming. Larger units, which tend to be the main screen in the home, are going to significantly outperform in terms of time spend streaming, which gives us a better opportunity to serve more ads and monetize home screen engagement and over -- and drive overall ARPU.

As I mentioned in the prepared remarks, our larger screens, which tend to be those mainstreams in the home, actually deliver an ARPU that's 30% higher than the smaller units. It's obviously in the blended 31, 55 ARPU that we reported this quarter, but that subset of that cohort is certainly delivering much greater economic value. So we need to think about how we position. We've got great products in the market with great reviews around it. That helps drive consumer demand and interest. We work with our retailers very closely, those partnerships to have attractive pricing and merchandising support. And so there is an element of leaning into that strategy that we know will drive much greater long-term value over time.

We will take our next question from Mike Morris with Guggenheim.

This is Charlie Wilber on for Mike Morris. Just wanted to -- are you guys able to hear me?

Yes. Go ahead, Charlie.

I just wanted to follow-up on the OEM partnerships and ask if you could provide any color on how you're thinking about the licensing potential there. And just how are you positioning your offer, your pitch to partners in order to compete with others like Google, Roku and Amazon? And do you expect to share an advertising economics with the OEMs?

Yes. Look, it's early. We're really excited about some of these conversations that are already underway, and we're working out details of what arrangements will look like. But we really are confident and feel strongly based on the feedback we're hearing that there's a real demand for something different in the market, and we hope to be able to bring that to these partners.

I view it also is really a TAM expanding opportunity for us. If you look at the U.S. TV market, it's a little over 40 million units a year. We're at about 11%, 12% market share of that. So it's a very large market outside of our own existing sort of our own product market share where there's an opportunity to break and penetrate more and more. The more we can expand our platform into the market, the more we can scale advertising business, the more viewership, we can take advantage of. We become a more important partner for advertisers, content partners, really across the board of benefits.

So we'll update as these things come together, but early indications, we're really excited about the progress we're already making in these early conversations.

And one follow-up, if I could. On engagement, you noted the strong growth in the SmartCast hours per account in the quarter. Can you speak to anything that drove this engagement lift, any impact you would call out from the launches of the ESPN or NFL apps? And then what levers you have to drive further growth from here?

Yes. I'll take this off. So one of the key factors, look, we continue to add more apps to the platform. I think we shared we added ESPN, we added NFL. We have a ton of great content partnerships that have helped drive more time spent in addition to the already great partnerships we have. But one of the key drivers this quarter was around the redesign we've implemented. So we -- as you know, we redesigned our home screen towards the end of last quarter. It's more immersive, it's more interactive. It's got a cleaner look and feel, and we're really pleased with the results of the redesign, right?

Reviewers were overwhelmingly positive. Consumers definitely are as well. And we know consumers are because they vote with their behavior. And not only are streaming hours up, but we've also seen engagement rates on the home screen, up over 60% this past quarter. So it's been great for consumers. They're spending more time. They're engaging more with the home screen. They're using it more for search and discovery. This is great for advertisers, obviously, could help drive more engagement into the apps that they're promoting. It's great for WatchFree+ because we invest a lot of home screen real estate and driving consumers into our owned and operated app.

And what is a very important factor in it is, it's all the backwards compatible. So if you bought a VIZIO TV 7 years ago or you have one bought one yesterday, you have that same great redesign on the home screen to help drive more time spent and more engagement.

Yes, Charlie, this is Adam. Just to add. What I like about it is we're seeing real indication that it's not just engagement for the sake of engagement, but it's actually engagement in areas where we have an opportunity to monetize as well. If you look at the statistics we provided, the SmartCast hours for active account, you can calculate that up was up 12%. But our ad revenue per average active account in the quarter was up 16%. So again, showing that we're actually able to monetize that engagement and that will obviously drive our revenue and growth over time.

We will take our next question from Steve Cahall with Wells Fargo.

This is Omar on for Steve. Quick question on the TV licensing opportunity. Do you envision finding partnerships in your current pricing range? Or is this an opportunity more attractive to you guys, for device types on price ranges where you have a lower market share, especially at the upper end of the market?

Look, I think we got to be competitive in pricing on everything we do. I mean, that is the market, right? We know we compete with house brands like ON, we compete with TCL, Hisense, we compete all the way up the letter. And so whatever we do has to be a compelling offering for the consumer. It has to be competitive, but it has to be thoughtful and great -- and we're looking for a partnership relationship with that as we mentioned can be mutually beneficial.

So back to my comment about continuing to be thoughtful, competitive but disciplined in our own products and then having these partnerships being an opportunity to expand our TAM beyond that. That's really sort of the great add-on to this that this can bring to us.

And maybe staying on the competitive environment. Just can you talk around what is the like out there from a pricing standpoint, especially across some of your close competitors?

Yes. Look, it's -- we track it, as you can imagine, very, very closely across the board to understand where we're positioned versus others. I would characterize the pricing dynamics as continuing to be very competitive, but not quite as extreme as we saw in Q1 and Q2. Some of the big outliers have moved back up closer to the averages for the -- on a given SKU. And that helps a bit. I mean, it certainly takes out some of those very, very extreme dynamics we saw maybe 1 or maybe 2, but really one particular brand gain a bunch of share in the first half of the year. That seems to have moderated a bit. And so we're encouraged by that.

But there's no doubt we expect it to continue to be competitive into the holidays, and that's why we've kind of factored in our positioning and our expectations around the holiday period where there's a lot of demand. We want to make sure that we have a strong competitive pricing. But again, we're going to continue to be disciplined about how we approach that.

We will take our next question from Jason Kreyer with Craig-Hallum.

Adam, just a question on the device gross margins. I know with that turning negative this quarter and the focus on the bigger screen sizes. Can you give any more color just on how aggressive you plan to get on those specific SKUs that you're targeting kind of where margins could go there?

Look, we don't guide the specific margins. Obviously, there's really a lot of competitive detail and information in that. We look at our pricing versus the market where others are on a SKU-by-SKU basis and want to make sure that we are competitive. But again, avoid this sort of race to the bottom dynamic. I think -- we don't think that some of those pricing strategies are sustainable in the market. And as a result, we don't feel the need to chase them in the immediate term that can jeopardize further economics. And so we're going to apply it kind of discipline around it.

But clearly, if you're sorting a 65-inch product with a higher average selling price versus say, a 32, the then there's different dollars that you need to support. But my point is that the customer lifetime value of a 65-inch as an example, is significantly higher than a 24 or a 32. And so for that reason, you're willing to make that investment because at the ARPU level, we're now generating and the strong margins in our Platform+ business, it is a positive customer lifetime value in a significant way.

And so when there's a race to gain households as we've talked about, it's competitive to be gaining and representing the operating system in a living room. We want to be really thoughtful about how we do that. And we like our strategy. We like this dual revenue structure that we've built. We've scaled up and run our platform business to a level now that gives us that financial and strategic flexibility, and we're going to be thoughtful about how we approach that in the overall market.

Maybe one for Mike. Just Curious if you can talk about the trends you've seen in advertising recently. We've just heard a lot of commentary on a tougher start to Q4. It doesn't seem like you're really guiding to that, but if you've noticed any of that in the market?

Yes. Look, speaking for VIZIO here, I mean, we saw a 27% growth in Q3. I think we're projecting pretty strong growth again in Q4. In terms of trends, M&E there's still some uncertainty. But as you mentioned, it wasn't as bad as we were expecting. I think we're well positioned there heading into Q4. There could be more upside as things come to a close. And potentially new releases come out or more premiers come out into the market.

But if you look at those 66 new advertisers we had, I mean, we saw a strong vertical growth, CPG, QSR roll up over triple digits. Pharma was up, insurance was up. I mean, we saw headwinds definitely in the automotive sector, but we're still up 60%. And we could have captured more dollars if there wasn't for a separate strike of their own. But by our ability to continue to add new advertisers, bring new partners into the fold, like automotive, we were able to get down into the Tier 2, Tier 3 categories, to help accelerate some of the advertising dollars. So we continue to feel strong about our position heading into Q4.

We will take our next question from Cory Carpenter with JPMorgan.

Mike, I wanted to ask you about political and how big of an impact do you think that could have in the work you guys are going to prepare for political advertising? And then maybe just a bigger picture question on SmartCast for Adam. $31 ARPU, you still have a gap that you're closing with peers. Where do you feel like you're still most under monetized on SmartCast?

Yes. Thanks, Cory. Look, we're very optimistic about the 2024 political cycle. When you think about what political advertisers are looking for, they want targeted buys against local markets and we're positioned incredibly well, right? We have the ability to target audiences down to the most narrow geographic regions. We just added 35 more local channels for WatchFree+ recently to add more local content. We've got obviously unique data through Inscape viewing data as well as broad reach in key swing states.

So we're set up well to capture some of, I think, what people are projecting to be I think $1.3 billion in CTV advertising this cycle. Last cycle, 2022, we learned a lot about how to improve sales. We did okay, not as good as we should have. But we learned from that. We've added sales staff in D.C. to be closer to clients. And we've also kind of improved our programmatic partnerships and the capabilities we have there to capture additional demand. So overall, we're very optimistic about our political revenue outlook for the back half of next year.

Yes. And on the ARPU question. I mean, obviously, we've made tremendous progress and we're very proud of the team and the execution that's got us to where we are, but we also believe there's significant headroom from here. If you look at just the U.S. market, we think there's a lot more room for growth versus this number that we're putting up today. And so we got to continue to keep investing in a great overall experience with the consumer, more content, use our home screen to drive engagement and ideally drive engagement in the areas where, as we've said before, where we have an opportunity to monetize. We want to deliver an exceptional user experience but also have an opportunity to serve ads and monetize that time spent.

There's no better place for us to achieve that than in WatchFree+. That's why we continue to add more fast channels there. We're adding more on-demand movie titles and television show titles. We're expanding that capability to bring more to the consumer and a greater value proposition over all of them. As we can drive more time in monetizable content, more engagement means more ads served, which means more revenue.

Also as we utilize our targeting tools and the data that we have, we can deliver exceptional campaigns for advertisers who are looking for specific ways to deploy campaigns and messages to consumers. So taking all of that together, again, we're really excited about the upside that there remains to our ARPU number.

VIZIO Account is an area where there's an opportunity, to your point, about the gap. We only rolled this out 1.5 years ago, and we're building out the partnerships that are available on VIZIO Account, and that will help drive subscriber revenue in that business. We've got about 40% of all the SVOD and TVOD apps that are now including that functionality. We're going to be adding the NFL app later this quarter for subscriber revenue as well.

So as we get the word out to our users that we've got this great way to manage their subscription services to engage with VIZIO Account and drive growth, we're seeing great lift in premium apps like Stars. That's a place where there's still, to your question, a gap versus what you see in existing marketplace today. So we're going to continue to work to close that.

We will take our next question from Tom Champion with Piper Sandler.

William, I'm just curious, based on your experience and tenure in the industry, what inning of the price work on the device side you think we're in, whether this cycle is following kind of a familiar template. What inning are we in? Could it extend well into next year? And would you expect the device segment to return to a positive gross profit contribution when all is said and done?

I had a second question on VIZIO accounts. Adam, you kind of just talked about it a little bit. Just wanted to see if there was any additional update there. Mike O'Donnell, I don't know if you'd have anything to add.

Yes, sure. So the TV market has been up and down for many years. And I think the beginning of the year, there's definitely oversupply of components that drove down the price quite a bit. And that situation eased up quite a bit. And I think the component manufacturer, they are more careful with the pricing because the more that they sell, the lower prices, there's more they're going to lose. They don't want to do that anymore again. Twelve months ago, there was a surplus of inventories. So maybe a lot of irrational pricing decisions. But now that's kind of disappeared.

But I think in the coming years, the price will be driven by not just component inventory pressure, but I think that's gone away. I think it's really a competition between the CTV system where people are fighting for CTV market share. So that's there to -- it's been out there for years now. I think that will continue, but the component pressure on surplus inventory ease up quite a bit in the past few months. Adam?

Yes. Look, on long-term margins, sure. I mean, I think over time, as this plays out, you could imagine that we would get margin back into device. But again, to our earlier points in the value of our installed base and the growing value as we execute against the significant upside we have to ARPU. From a customer lifetime value standpoint, it continues to tend to deploy the strategy that we're working on right now. So we're going to continue to be focused on that.

Yes. Tom, on your question on VIZIO Account, not too much data points to add beyond Adam. So I think you shared 40% of the SVOD, TVOD base has integrated over 200% increase in terms of subscriber growth over last year. But one of the things we've done is we just recently held our developer conference this last quarter. And it's critically important for us to continue to grow our relationships with the developers on our platform. And VIZIO Account is one way we're continuing to do that. I think it creates opportunities for them to drive more subscribers to get closer to our customer base. But we also leverage it to help and we had over 200 attendees speak to them about other ways in which we can help them monetize, ways we can do that through advertising.

And then also some of the unique tools we have put in place around interactivity, around our enhancements to our mobile platform, enhancements to our home screen in which we can help them drive more innovation. So VIZIO Account is one component that will help us continue to grow monetization. But I think it's also an important component that helps us integrate more deeply with the app partners on our platform and show them that we have a lot of capabilities for today and for the future.

We will take our final question from [Tom Champion with Barrington].

We will take our final question from Jim Goss with Barrington.

I was wondering, first, the comment about the higher monetization of the larger sets. I was wondering if you could talk about the mix of drivers of that higher lifetime value. Was it the increased usage only? Or were there differences in the ad exposure and the monetization events that were taking place?

Look, I think it's sort of both. I mean it's the way that they use the unit, right? If you could imagine, let's just use a 65-inch again as an example. That's going to be the main TV in the home. That's where they're going to be watching most of their lean back long-form content. They're going to be highly engaged with streaming services and engaging in a way that we have an opportunity to monetize that interaction, not only in the home screen, but obviously across a variety of third-party apps and then hopefully, they're spending a growing amount of time in our WatchFree+ as we continue to build out and expand best service offers.

Contrasting that to a smaller unit where, maybe over time, it becomes a TV in the bedroom, it's not used as frequently. Maybe it's a monitor. A lot of different use cases can span across the various sizes. And so as we understand that data more and more and we understand the lifetime value. We understand how many -- how long a particular TV stays active in our fleet. It really helps drive and inform us around decisions on pricing, on retail relationships because ultimately, it's really about having an opportunity to expand the monetization.

Do you get a combined effect if you have multiple VIZIO TV households? Or do you treat them separately?

It's really device metric, right? And so it all gets blended into our average reported statistics. So if a household is a 24-inch in 1 room and a 65-inch in the other room, and they use them differently, that will show up on a blended basis in our overall reporting statistics.

Okay. And one other quick thing is the VIZIO branded content studio, you have one of your slides addresses that. I wonder if you could talk about the potential importance of it? What you're planning to do with that?

Yes, Jim, it's Mike. I'll take that. So from a home screen perspective, we've been looking at a lot of ways in which we can expand our advertiser base beyond media and entertainment. And I think we've done a really good job, whether that be with promotion of certain content we have within our platform, whether that be sponsorships of custom curated collections or channels as well as branded content. It's all ways in which we can bring a new fleet of advertisers into the home screen or monetize them beyond video or household connect.

So branded content studio has been a great addition for us to our advertising offering. Our TV data helps us understand what our consumers like to watch. So the branded content initiative helps us pair advertisers with content that's produced for their tastes. I think you see we just rolled out this past week, our latest installment. It's called Merry & Bright, a holiday decorating show with Jordin Sparks and it's brought to you by Home Depot.

We think the branded content studio is great because it gives our consumers exclusive original content. It's great for the advertiser because our users are guaranteed to see the home screen when they turn the TV on, so it will provide great branding for them, as well as integrations directly into the content itself. With Home Depot, not only are they integrated into content, but we also have QR codes. So we're able to create a shoppable experience as well.

And then when you tie it all together from an economic standpoint, all the investment that we're making in this original content is covered by the partnership. So we think it's a great way to continue to grow our relationships with non-media and entertainment partners integrated into the home screen.

Thanks, everyone, for joining. This concludes today's call. Have a great evening.