Disney Stock (NYSE:DIS)
Citi now believes that Walt Disney (NYSE:DIS) could sell out of its majority investment in Hulu, passing it to minority partner Comcast (NASDAQ:CMCSA). This runs counter to some common knowledge, which suggests that a planned Hulu/Disney+ combination is in the works.
After the buyouts of previous partners Fox and Time Warner, Disney now controls a 67% share of Hulu. Comcast holds the other third of the company, and a pact between the two companies sets up the possibility of a buyout by the spring of 2024.
Citi believed that Disney’s direct-to-consumer business could go one of two ways before earnings season: either the company would “raise prices to narrow the [earnings before interest and taxes] gap (potentially relegating its service to niche status),” or the company would merge Disney+ and Hulu into a single app, boosting the content schedule and leaving price increases to the future.
According to current information provided by analyst Jason Bazinet, “we believe the business is less interested in a mass market DTC offering.” “we will focus even more on our core brands and franchises, which have consistently delivered high returns,” Disney CEO Bob Iger said in a commentary following the company’s earnings report for the first quarter of the fiscal year. Iger was referring to the company’s plans to pursue both growth and profitability in the streaming business.
In addition to this, Bazinet speculated that Disney may sell its “Hulu” in exchange for a “Hulk” instead. Universal has distribution rights for a pair of the comic name’s characters: The Incredible Hulk and Namor. This means that if Disney makes a film based on either of those characters, Comcast can distribute that film on Peacock. Disney owns all of Marvel’s intellectual property, but Universal has distribution rights for The Incredible Hulk and Namor.
Bazinet indicated that Disney may take advantage of the opportunity presented by the sale of its investment in Hulu in order to acquire those distribution rights.
Yet, from this point forward, there is a wide variety of scenarios that could occur in the midst of some jockeying for position between Disney and Comcast on the value of Hulu.
The fact that Disney does not reveal Hulu’s financials on a standalone basis prompts experts to come up with their own estimates of the service’s value. According to projections made by Bazinet and Citi, Hulu’s EBIT in 2024 will fall anywhere between -0.5 billion and 1.25 billion dollars, which will result in a valuation somewhere between $19.8 billion and $27.5 billion.
According to Bazinet, the acquisition of Hulu by Comcast would be a net positive for the company if the price paid was less than $27.5 billion. This would allow Comcast to “accelerate DTC scale with potential financial synergies, accelerate its push into live streaming aggregation, and improve its strategic positioning within the media category,” Bazinet said.
If Disney were to sell something, he said, the money could be put to one of two uses: either Disney would pay down debt, which would result in incremental earnings per share ranging from -$0.18 to $0.37 (with a range of $3 per share to $7 per share), or Disney would retire shares, which would result in incremental earnings per share ranging from $0.04 to $0.74, with a range of $1 per share to $13 per share.
In December, the Chief Executive Officer of NBCUniversal, Jeff Shell, stated that he saw “no signs that anything else is going to happen beyond Disney handing us a big cheque” for Hulu in 2024. Shell was referring to the potential sale of Hulu to Disney.
Disney stock has gained 10% year-to-date.
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