According to Wells Fargo's Steven Cahall, Disney selling Hulu is no longer just an alternative counter-theory, existing on the outer fringes of the broader, rampant forward-looking speculation regarding Hulu's fate. It's evolved into a mainstream thesis.
"Ask 10 investors if they think Disney will sell Hulu, and we think ~7 will answer, 'yes,'" Cahall wrote in a Wednesday morning investor note.
Certainly, count Cahall among the other ~3.
"We think investor expectations for Disney selling Hulu have run too far too fast," he said.
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Closing 2022 with 48 million subscribers, $10.7 billion in revenue and profitable EBITDA margins, Cahall concedes that Hulu is "an attractive streaming platform for any buyer looking for scale."
But so much of what Hulu is roots deeply into Disney, he argues.
"Let's not forget that most of the content comes from Disney: FX, ABC, 20th Century, Searchlight, etc.," Cahall notes. "Buying Hulu from Disney would likely require a content deal for an interim period (or buying those content engines). Those engines also provide content to Disney Plus internationally via the Star tile, so it's tricky.
Then there's the issue of who would buy Disney's controlling stake in Hulu.
Minority owner Comcast is thought by most investors to be the most likely buyer. But Cahall thinks it's more likely that the Philadelphia cable conglomerate exercises a deal clause with Disney that allows it to sell its 30% share in Hulu for around $9 billion.
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Then there's the issue of the Disney Bundle -- Cahall thinks Hulu is a pretty good fit, supplying "general entertainment" nutrition to a diet that gets franchises from Disney Plus and sports from ESPN Plus.
"Exiting domestic streaming general entertainment would mean ceding the market to Netflix, HBO, Apple, Amazon, Comcast, Paramount, etc.," Cahall writes. "If ESPN Plus becomes a bundler of broader sports then ESPN Plus/Hulu becomes an entertainment powerhouse to rival the lucrative pay TV bundle, while Disney Plus could likely stand alone as a global play on DIS's franchise IP."
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In conclusion, he adds, that selling Hulu is an option, "but unless Disney can get a nice price, it would seem to remove future optionality. Improving company EBITDA via cost reduction and DTC revenue growth is a better way to remove current leverage risks in our view, vs. sale of a successful domestic streaming service. We think investors counting on a Hulu divestiture could be disappointed."
