Proactive Investors - The Walt Disney (NYSE:DIS) Corporation could sell its two-thirds stake in Hulu in favor of securing the distribution rights to the two Marvel characters held by Comcast (NASDAQ:NASDAQ:CMCSA), Hulk and Namor, analysts at Citi believe.
In a note to clients, the analysts pointed out that while Disney owns all of the Marvel intellectual property, Comcast (NASDAQ:CMCSA) maintains the distribution rights to those two characters.
“As such, if Disney makes a Hulk or Namor film, Comcast (NASDAQ:CMCSA) can distribute the film on Peacock,” they wrote. “If Hulu is sold, Disney may use this as an opportunity to secure these distribution rights.
The analysts suggested that Disney is now “less interested in a mass market direct-to-consumer (DTC) offering,” after CEO Bob Iger told investors the company would focus on its core franchises and aggressively curating general entertainment content.
“While the cost of securing these rights is likely small relative to the value of Hulu (we estimate the value at only $0.3 billion), it would fit with Mr Iger’s desire to focus on core brands and franchises," they wrote.
“This raises the possibility that Disney may sell its Hulu stake.”
As part of its joint ownership agreement with Comcast, Disney owns 67% of Hulu, which the analysts estimated could be valued at anywhere between $19.8 billion to $27.5 billion.
“Based on Hulu's level of profitability, the sale price, and Disney's use of proceeds, we see a wide range of outcomes from about $3 downside to about $13 of upside per Disney share,” Citi’s analysts wrote.
“For Comcast, we see a balanced risk-reward of $2 to $3 per share in each direction, while the strategic and financial merits support a positive move for the equity, in our view.”