Frazer Harrison
Walt Disney's (NYSE:DIS) disclosure that it will acquire Comcast's (NASDAQ:CMCSA) 33% stake in streaming service Hulu is seen as a positive for the Bob Iger-led company, though the eventual purchase price is an unknown.
“The integration of Hulu with Disney+ in the U.S. will drive churn benefits, better leverage in the ad market and create new licensing and cost savings opportunities for Disney once the two services are combined,” UBS analysts led by John Hodulik wrote in an investor note.
The analysts see the 33% stake held by Comcast (CMCSA) valued at between $9B and $13B, the latter of which is the current Netflix (NASDAQ:NFLX) multiple of 5.1 times revenue. The $13B figure is unlikely given the structural differences between the assets, and despite the fact the only real comparison for Hulu is Netflix, the analysts said.
Netflix (NFLX) has a dominant global position with 230M-plus subscribers to Hulu’s 48M-plus in the U.S. Netflix (NFLX) also has 20% margins where Hulu is nearing break-even, as well as $6.6B in cash flow this year to Hulu’s negative cash flow.
Of particular note is that Comcast (CMCSA) has already pulled all of its next-day content from Hulu and put them on its own streaming service, Peacock.
UBS estimates that Hulu will generate roughly $8B in subscription revenue — excluding Live TV — next year.
In a statement, Disney (DIS) said it expects to pay about $8.61B to NBCUniversal (CMCSA) to acquire the latter's stake in Hulu. However, Disney (DIS) could pony up more than that sum as Comcast (CMCSA) has been floating a significantly higher valuation for Hulu.
The $8.61B figure represents NBCU's part of the $27.5B guaranteed floor value for Hulu, which the companies agreed upon in 2019.
The valuation process is likely to extend into the first quarter of 2024, according to UBS. With the $27.5B current valuation, that puts Comcast’s (CMCSA) stake at a minimum of $9B.
Disney (DIS) shares were up 2.6% on Thursday.