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UBS analysts told investors in a note Friday that the future of Hulu is a key question for Walt Disney (NYSE:DIS), Comcast (NASDAQ:CMCSA), and the wider industry.
The analysts explained that “based on the 2019 deal, both parties can trigger the sale of Comcast’s ~33% stake in Hulu (ex capital contribution adj) to Disney for ~$9B or a min equity value of $27.5B (~3.5x 2023E SVOD revenue) starting in Jan. ’24.”
“Hulu is the 3rd largest SVOD service in the U.S. w/ 48M subs (44M ex Live TV) and has established itself as the industry leader in DTC advertising. While growth has slowed, the service is on pace to reach breakeven in ’23 as it contends w/ fierce competition in streaming from legacy Media and deep-pocketed tech players,” wrote analysts.
UBS’ base case is that Disney will consolidate 100% of Hulu and drive additional cost-cutting.
“In such a scenario, we would expect Hulu to be integrated with Disney+ in the U.S.(similar to how Star is delivered in most markets), providing another example of service consolidation/ integration in the industry (Paramount+/Showtime, HBO Max/Discovery+, etc.),” the analysts added. “We believe this could drive churn benefits, better leverage ad infrastructure and create new licensing and cost savings opportunities above the $5.5B savings target previously outlined.”
As a result, UBS believes Disney will have greater earnings power and a “leaner, more focused” direct-to-consumer strategy.
