Walmart is coming for your TVs

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Buying a TV maker on a budget isn't the most obvious way to sell more advertising. But when you're the largest retailer in America and your stock price is at a record high, you can make a side bet or two.

Walmart pitched its $2.3 billion acquisition of TV maker Vizio last month as a way to expand the reach of its small but fast-growing advertising unit. Right now, the retail giant mainly sells ads on its websites, apps and self-checkout screens in stores. Buying Vizio would give it more ways to sell advertising through Vizio TVs and its free video streaming service.

Walmart's poor M&A record calls for doubt. E-commerce sites Jet.com, ModCloth, Moosejaw and Bonobos, as well as video-on-demand service Vudu, have outpaced Walmart's forays, which have since been sold or shut down.

But those deals were not a complete failure. Even if these brands never became a significant part of its business, Walmart gained valuable knowledge that helped jump-start its e-commerce operations. More than 15 percent of its total sales, or $100 billion, came from online channels in its last fiscal year, compared with $10 billion a decade ago. Vizio could serve the same function as Walmart seeks to build its media and advertising platform to compete with Amazon.

Walmart pays a whopping 59 times forward earnings for Vizio. She has good reason to move quickly. While the duopoly of Meta, the parent company of Google and Facebook, still rules the $270 billion US digital advertising market, the window has opened for traditional retailers to grab some of that market share.

In 2021, both Apple and Google introduced new privacy features that will make it harder for advertisers to collect data for targeted ads. The decline in third-party cookies has left brands with less visibility into their ad spend. But it has made first-party data, like that collected by Walmart on the 255 million customers who visit its stores and websites each week, more valuable.

Underscoring the potential growth of the market, a report by GroupM believes that retail media ad spending in North America will exceed television revenues by 2025.

Currently, advertising represents a small slice of Walmart's total revenue. But it is very profitable. Analysts at Citi estimate operating margins at at least 60 percent; They believe ad sales generated about 7.5 percent of Walmart's total operating income last year and could account for 8.6 percent this year.

Vizio is a small, if expensive, acquisition. Its live streaming service has about 18.5 million active users and the company generated $28 million in net income on $1.68 billion in revenue last year. But it shows that Walmart is serious about building a competitor to Amazon Prime. The payoff could come if Walmart can successfully use Vizio to create an entertaining offering for Walmart+ members and persuade companies to allocate more of their advertising budget to it.