Thursday, November 2, 2023

Sometimes you can see the plot twists in a TV show coming from a mile away. One could say the same for streaming service Hulu, which Disney $DIS just announced that it will buy out entirely for at least $8.6 billion.

Wait a minute — Calcbench did see that deal coming from a mile away, as far back as 2019! 

Back during that golden era of streaming services, our research team had a hobby of analyzing the disclosures of Hulu’s corporate owners to see what clues we could garner about its financial performance. If you knew where to look, you could piece together quite a bit.

As far back as 2016, we had a post about the three corporate owners of Hulu at that time: Disney, Comcast $CMCSA, and 21st Century Fox ($FOX). Those three had each owned 33 percent of Hulu until mid-summer, when they allowed Time-Warner to buy a 10 percent stake of Hulu. We also noted that Comcast had booked a loss of $65 million from Hulu in the first half of that year. Do the math, and it meant that Hulu was on track to lose $390 million that year. 

In May 2017 we had a follow-up post, again digging into disclosures at Comcast, Disney, and the other corporate parents. We estimated that Hulu lost $180 million in the first quarter of that year, although we never could deduce how much revenue the service was bringing in. 

By the time of our third post on Hulu in December 2017, much had changed. Most notably, Disney had proposed to buy most of 21st Century Fox’s entertainment assets — including Fox’s stake in Hulu. That deal ultimately did close, giving Disney a controlling interest in Hulu (its own 30 percent stake, plus Fox’s 30 percent). We also figured out that Hulu’s losses had ballooned in the last three years to the mid-nine figures. 

We published our longest analysis ever of Hulu in 2019. By then, Disney had bought out the 10 percent stake that Time-Warner had acquired back in 2016. Time-Warner paid $590 million for that stake in 2016; three years later, Disney bought it back for $1.4 billion. 

Here’s the critical part. When Disney acquired all those Fox assets, it disclosed the purchase price allocation — and included the value of its own 30 percent stake that Disney had previously owned. Figure 1, below, shows that Disney valued that 30 percent slice of Hulu at $4.74 billion.

Do some math again, and that implies a total valuation of $15.8  billion. Thanks to some other fine-detail negotiations, Disney actually owned 67 percent of Hulu at the time. Which means Comcast’s remaining one-third stake would’ve been worth $5.26 billion.

Now comes the big reveal. 

Disney and Comcast had also reached an agreement that come January 2024, either party would have the right to compel Disney to buy out Comcast’s remaining stake in Hulu for fair market value or total valuation of $27.5 billion, whichever is greater.

Disney is being cagey on what the exact final purchase price will be. The fair value will be assessed as of Sept. 30, 2023. The company said in a statement that “if the value is ultimately determined to be greater than the guaranteed floor value, Disney will pay [Comcast] its percentage of the difference between the equity fair value and the guaranteed floor value.”

We won’t know that exact final price until sometime in early 2024. Still, nobody who had been keeping an eye on the details should be surprised by any of this. For years, buried in the footnotes, were disclosures that showed steep losses at Hulu. Its valuation three years ago was $15.8 billion. Now the question is whether Hulu turned around its fortunes so quickly, and so dramatically, that its valuation will be worth more than the $27.5 billion floor price.

In other words, just like an episode of Only Murders in the Building, all you had to do was look for the clues there in the background all along. 

FREE Calcbench Premium
Two Week Trial

Research financial & accounting data like never before. Get features designed for better insights. Try our enhanced Excel Add-in. Sign up now to try the Premium Suite.