Disney's (DIS) Share in Hulu Rises After AT&T Sells Stake

Disney’s DIS stake in Hulu has increased after AT&T T sold its 9.5% stake in the company for $1.43 billion, per TechCrunch. This development came after reports suggested that Disney was in active talks to buy the telecom giant’s stake.

While Disney currently owns 60% stake in Hulu, Comcast CMCSA has 30% ownership.

Both the companies closed the deal immediately as the transaction did not call for any external approval, per Hulu. Currently, Hulu is valued at $15 billion, up from $5.8 billion when AT&T’s Time Warner had purchased the stake in 2016. It is also higher compared to Disney’s last November filing, which valued Hulu at $9.26 billion, per TechCrunch.

Per Variety, a Hulu spokesperson stated that the company will allocate AT&T’s shares to Disney and Comcast over a certain time frame.

The Walt Disney Company Revenue (TTM)

The Walt Disney Company Revenue (TTM)
| The Walt Disney Company Quote

Hulu’s Licensed Content to Boost Subscriber Base

Disney has big plans for Hulu, evident from the fact that the company is adding content to Hulu’s platform and plans to take the service international.

In February 2019, Disney signed a deal with Hulu to produce four animated series from its Marvel Studios. The popularity of Marvel Studios’ film slate and TV shows may help Hulu continue being the fastest growing video service in the United States as it was in 2018, per Disney.

Additionally, Disney’s decision to add licensed content to Hulu’s platform may help the latter grow its user base. Notably, 89% of Hulu subscribers first watched licensed programming before watching original content per 7Park Data.

Hulu, which had 25 million subscribers in 2018, is expected to on board 40-60 million subscribers by 2024, per Disney. Additionally, the service is expected to be profitable by 2023 or 2024 in the United Sates.

Disney Ups Content Spend

Disney with Disney+, Hulu and ESPN+ is aiming to take on Netflix NFLX, Amazon and the upcoming AppleTV+.

The media behemoth is expected to spend a whopping $23.8 billion in 2019, per RBC research stated by Variety. Although Netflix is close behind with an expected spend of $15 billion in 2019, per Variety, the streaming giant will have to fight Disney’s brand loyalty.

Notably, Disney boasts a fan base of more than of $1 billion, per Kevin Mayer, chairman, direct-to-consumer and international. Additionally, the company’s content strength is evident from the fact that Disney and Fox combined received 37 nominations at this year's Golden Globes while Hulu received 27 Emmy Award nominations in 2018.

However, Netflix received the highest number of nominations (112) at Emmys 2018 and won five awards at this year’s Golden Globes.

Moreover, rising costs are expected to have a negative impact of $200 million on Disney’s second-quarter fiscal 2019 operating income. This does not bode well for the Zacks Rank #4 (Sell) stock’s profitability.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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