Disney selling Hulu 'would be a grave mistake,' says analyst
Disney (DIS) selling its majority stake in Hulu might not be the best idea, at least according to one media analyst.
"I think [selling Hulu] would be a grave mistake," Jason Bazinet, managing director at Citi, told Yahoo Finance Live on Monday. "We would like to see Disney buy in the balance of Hulu it doesn't own, merge that with Disney+, rationalize some costs, and really create what I'll call a TV substitute in the streaming world."
Disney currently owns two-thirds of the streamer with Comcast’s Universal (CMCSA) controlling the rest.
Under the terms of the joint ownership agreement, Comcast could require Disney to buy out its stake in Hulu as early as January 2024 at a guaranteed minimum equity value of $27.5 billion (or about $9.2 billion for the 33% stake.)
Hulu boasts around 48 million subscribers and hosts top-rated shows including "Only Murders in the Building," "The Handmaids Tale," and "The Dropout." Hulu's subscribers grew 2% in Disney's latest quarter.
'Everything is on the table'
During Disney's first-quarter earnings call in February, Iger doubled-down on the view streaming was his "top priority" for the company, but he told CNBC "everything was on the table" in regards to Hulu’s future.
"I’ve talked about general entertainment being undifferentiated. I'm not going to speculate if we're a buyer or a seller of it," Iger said. "But I'm concerned about undifferentiated general entertainment. We're going to look at it very objectively."
Bazinet said he was "flabbergasted" by Iger's comments, but admitted he's in the minority among fellow analysts and investors.
"Every investor I chat with would be thrilled if Disney sold Hulu," the analyst said, adding "the Street would applaud" further commentary surrounding a potential sale.
At the time of the original Hulu arrangement between Comcast and Disney, Iger maintained the purchase would allow Disney the opportunity to offer an alternative, more mature viewing experience to consumers, in addition to providing more flexibility with bundling.
Flash forward to today, and investors are far more focused on the profitability of streaming, as well as whether a service can draw enough of an audience amid increased competition.
Disney's direct-to-consumer division reported a $1.1 billion loss in its fiscal first quarter — an improvement compared to the $1.5 billion loss seen in Q4, but still a significant drag on profits.
Iger, who stepped back into the CEO position in November, has remained hyper-focused on profitability as investors shift focus away from subscriber growth and put more emphasis on margins.
The executive has worked hard to establish new revenue streams like Disney's recently launched ad-supported tier, in addition to various price increases to help pare losses and lift metrics like average revenue per user, or ARPU. He reaffirmed the company's outlook of reaching streaming profitability by 2024.
Disney will report earnings after the bell on Wednesday. The company is currently in the middle of mass layoffs in an effort to slash $5.5 billion in costs. It will eliminate 7,000 jobs by the summer.
Shares are currently up about 15% year-to-date, outpacing the S&P 500's 8% gain.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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