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Disney 'unlikely' to sell Hulu, says Wells Fargo

Published 03/15/2023, 12:13 PM
Updated 03/15/2023, 12:39 PM
© Reuters.  Disney (DIS) 'unlikely' to sell Hulu says Wells Fargo
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By Michael Elkins 

Wells Fargo reiterated an Overweight rating and $141.00 price target on Disney (NYSE:DIS) after examining rumors that the media company is being encouraged to sell Hulu, a subscription based streaming service owned by the company.

Wells Fargo analysts wrote in a note that "[b]oth the press and investors seem to think DIS selling Hulu is likely. We think it's unlikely."

Hulu has over 40M subscribers and around $7bn in FY23E revenue. As attractive as that looks on paper, most of the content comes from Disney subsidiaries such as: FX, ABC, 20th Century, Searchlight, etc. Anyone looking to buy Hulu from the media conglomerate would likely require a content deal.

It is also currently unclear who would buy the streaming platform. Comcast (NASDAQ:CMCSA) is believed by most investors to be most likely, but it has Peacock and reportedly was interested in Warner Media from AT&T (NYSE:T). Comcast has a 2024 put on its Hulu stake that is currently worth ~$9bn, and the analysts think it's more likely that Comcast exercises that and pursues other M&A.

The analysts continued in the note, "[w]e think investor expectations for DIS selling Hulu have run too far too fast. Yes, it's an option but unless DIS 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."

Shares of DIS are down 1.47% in mid-day trading on Wednesday.

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