Citi Analyst Says Disney May Sell Hulu
Earlier this year, following the latest Walt Disney Company’s quarterly investors call, CEO Bob Iger spoke about the future of its streaming service, Hulu, which it owns 67% of, saying that “Everything Is On The Table”, either buying out Comcast 33% stake in 2024 or even selling the streaming service.
Since Bob Iger’s return, there have been some major changes in the company, with a restructuring into three separate divisions, Entertainment, ESPN and Parks, Experiences & Consumer Products. With Iger looking to make over $5 billion in cost savings, which includes drastically scaling back its general entertainment plans and curating its slate of content more selectively.
According to Puck, Disney has brought Goldman Sachs in to deal with a potential sale of Hulu or to organise the buyout of Comcast’s take, which Disney or Comcast can enforce in 2024, due to a previous deal made when Disney purchased 20th Century Fox and became the largest shareholder in Hulu. Comcast’s CEO has also spoken in the past, saying that he is expecting a big fat cheque from Disney for Hulu in the future.
There has been lots of speculation since Bob Iger’s comments about the sale of Hulu, and recently, a Citi Bank Wall Street Analyst Jason Bazinet has stated that he believes Walt Disney is looking to sell its majority stake in Hulu, transferring to Comcast.
“We believe the company is less interested in a mass market DTC offering. This raises the possibility that Disney may sell its Hulu stake”
Prior to the recent investors call, Citi Bank believed that Disney had two parths for its direct-to-consumer business, either to “raise prices to narrow the [earnings before interest/taxes] gap (potentially relegating its service to niche status),” or merge Disney+ and Hulu into a single app, boosting the content schedule and leaving price increases to the future (which is what Disney+ looks like outside the US).Another interesting aspect of the deal, is that the analyst is saying that while Disney owns all of Marvel’s intellectual property, Universal still has distribution rights for The Incredible Hulk and Namor, which is why Disney hasn’t released solo projects with either Namor or the Hulk, instead putting the characters into other films and shows like “Black Panther: Wakanda Forever” and “Avengers”.
“While the cost of securing these rights is likely small relative to the value of Hulu (we estimate the value at only $0.3 billion), it would fit with Mr. Iger’s desire to focus on core brands and franchises,” the analyst said.
It’s also worth noting that Universal also has the East Coast of America rights to use many of the Marvel characters in its theme park, which is why Universal’s Islands Of Adventure theme park has a Marvel land, but Disney hasn’t built an Avengers campus area, like it’s done in its parks in Hong Kong, Anaheim and Paris. So these rights will no doubt also be something that could be sorted out, should Comcast and Disney make a deal.Many believe both Disney and Comcast are jockeying for position, to try to either increase the value of Hulu, so Comcast gets paid more, or decrease the value, so Disney has to pay less. Disney and Comcast’s agreement means that Hulu has to be independently valued, but that there is a minimum set of $27 billion. According to Citi’s valuation, they view Hulu as being worth between $19.8B and $27.5B.
“Based on Hulu’s level of profitability, the sale price and Disney’s use of proceeds, we see a wide range of outcomes from ~$3 downside to ~$13 of upside per Disney share. For Comcast, we see a balanced risk-reward of $2-3 per share in each direction, while the strategic and financial merits supports a positive move for the equity, in our view.”
If Comcast was to buy out Disney’s stake in Hulu, it could “accelerate DTC scale with potential financial synergies, accelerate its push into live streaming aggregation, & improve its strategic positioning within the media category,” according to the analyst.Should Disney sell Hulu, it’s expected to pay down its debt or retire some shares.