Why Walmart is buying Vizio

New York (CNN) — Walmart doesn’t want to just sell groceries and t-shirts. It wants to be a media and advertising giant like Amazon.

Walmart announced Tuesday that it’s buying TV maker Vizio for $2.3 billion to shore up its advertising business and create a more potent rival to Amazon’s booming ad business.

Walmart currently sells ads at physical stores and its website. By acquiring Vizio, Walmart can now sell ads through streaming services on television.

“This accelerates Walmart’s advertising as it moves into streaming TV opportunities,” said Andrew Lipsman, an independent media analyst.

The acquisition could make Walmart a bigger presence in the TV streaming wars, especially if Walmart acquires a streaming service, Lipsman said.

Roku, a streaming competitor, last week noted that television advertisers are increasing the amount they spend on streaming ads as customers continue to cut the cable cord. Roku and Amazon sell advertising space on their various streaming channels and home screens, and they sell licensing arrangements for companies to put their brand on certain shows. They also sell space to apps and media channels to advertise their movies and shows on customers’ screens.

Advertising and groceries

Walmart believes it can add revenue by offering brands the opportunity to advertise on Vizio televisions.

Vizio’s Smart TV operating system, SmartCast, has more than 18 million active accounts. The deal would give Walmart more ways to offer ads through Vizio televisions, as well as create entertainment options exclusively for customers with Vizio TVs.

This “approach gives Walmart a lot more power and reach in the world of advertising and puts it on a more level playing field with the likes of Amazon,” said Neil Saunders, a retail analyst at GlobalData Retail.

Walmart wants a bigger slice of brands’ advertising spending to supplement its primary low-margin retail business.

Groceries, which make up more than half of Walmart sales, carry razor-thin margins. Walmart has also sacrificed profit in recent years by investing billions of dollars to build out its digital operation.

The company believes that building new revenue streams, such as higher-margin advertising dollars, can help offset Walmart’s heavy spending and boost profit. Advertising

“The deal underlines that retail is becoming a much more diversified business than it used to be,” Saunders said.

Walmart has been pitching advertisers in recent years on its ability to reach customers. It has a trove of shopper data because 90% of America shops at Walmart every year, and its website and stores attract some 160 million visitors a week. Walmart is pitching availability of their specific consumer sales data – online and brick and mortar – to curate and target those ads across all platforms.

Its advertising business reached $3.4 billion last year, but makes up less than 1% of its total sales.

Other retailers are also building their advertising businesses, such as Kroger and Target.

These retailers are following Amazon, which has become the third largest advertising company behind Google and Facebook. Amazon’s ad services business grew 27% last quarter, and made up around 15% of its total sales.

Walmart says some prices are falling

Walmart’s announcement came as it reported strong sales and earnings during its most recent quarter, sending its stock up 3% during pre-market trading Tuesday.

The company said it gained market share in groceries and general merchandise, particularly among higher-income households. Digital sales in particular were a bright spot. And it expected a strong 2024, although it forecast sales to slow a bit from last year.

Walmart said it saw prices start to fall in home goods, toys and other seasonal categories. Grocery inflation has also moderated.

Lower prices would be welcome news for shoppers. But it could be dangerous for the economy. Falling prices can indicate weak demand, and consumer spending is a big portion of the economy.

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