Fresh off of its Q2 earnings, Disney (DIS) now faces a key question from investors: Should it sell Hulu?
Net additions for the company's fledging streaming platform Disney+ came in at 7.9 million, well above estimates of 4.5 million, but Wall Street is now mulling whether or not the media giant should sell off some of its other entities, such as Hulu, amid a crowded media landscape.
"Personally, I think selling Hulu would be a good idea," Doug Creutz, senior analyst at Cowen, told Yahoo Finance Live.
The analyst, who noted that Hulu is "not a Disney branded product," said that the media giant "would be better off really focusing on the strengths of the company — that branded, high-quality, family content, rather than trying to be everything to everybody."
To date, Hulu has 45.6 million subscribers, just shy of estimates of 46.6 million.
Disney owns two-thirds of the streamer with Universal (CMCSA) controlling the rest. Under the terms of the agreement, Comcast could require Disney to buy out its stake in Hulu as early as 2024.
At the time of the arrangement, then-CEO Bob Iger maintained that 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 streaming economics are vastly different.
According to Lightshed Partners’ Richard Greenfield, waiting until 2024 for Disney to end the Hulu partnership with Comcast "feels suboptimal."
"Comcast has already taken back their NBCU content for Peacock (kicks in this fall). With Disney proving it can expand the diversity of content on Disney+ with parental controls, there is little rationale for Disney to keep Hulu," Greenfield wrote in a new blog post.
Selling its majority stake in Hulu "would enable Disney to raise at least $18 billion of cash and remove a business that is not only losing money as the streaming wars intensify, but which only exists in the U.S. (vs. Disney+, which is global)," the analyst continued.
Greenfield suggested Disney use that cash to buy Netflix, saying the two media powerhouses "are truly complementary pieces in the streaming puzzle that would dominate the global war for time spent with video."
Furthermore, as the market has become more saturated, Greenfield explained that investors are less concerned with subscriber growth and more focused on business operations and profitability.
"Disposing of Hulu would enable a far cleaner, understandable Disney+ streaming strategy," he wrote. "Given the success of Disney+, Hulu just feels less compelling in the portfolio. No Disney investor owns Disney stock for Hulu and investors would applaud a sale to Comcast/NBCU."
Cowen's Creutz agreed, although he noted that Disney likely won't take that approach in 2022.
"It's a sunk cost, but it's still hard to go back and admit, 'Yeah, we did this and maybe it wasn't the best idea.' So I don't I don't expect it to happen this year," he said.
"If you get to next year and the business is struggling, then they may need to rethink but I think at least for the remainder of this year, [Disney] is going to stay the course," the analyst added
Disney+, which will open in 53 new markets in the the third quarter of 2022, has 137.7 million global subscribers to date, above expectations of 134.4 million.
The company reiterated its target to bring on 230 million to 260 million subscribers to the service by the end of fiscal 2024. For context, Netflix's subscriber count sits at 221.64 million global subscribers.
Beyond Disney+, the company will also lean on the theatrical rebound, with top titles like "Thor: Love and Thunder" and "Avatar: The Way of Water" set to debut later this year.
Disney's market cap has slipped to just over $186 billion, with shares falling more than 30% year-to-date.
Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 or email her at [email protected]
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