Hulu Now Worth $25B, up From $15B, Analyst Says

Hulu-A general view of atmosphere-Getty-H 2016
Monica Schipper/Getty Images for Hulu

Credit Suisse's Omar Sheikh says the online video service should turn an operating profit in 2018 as he adds co-owner 21st Century Fox to his list of focus stocks.

Credit Suisse analyst Omar Sheikh on Monday replaced Time Warner with 21st Century Fox on his firm's U.S. and global lists of focus stocks, driven by a higher valuation on Hulu.

He boosted his target price on Fox's stock to $40 from $37, as result of "a more bullish view on Hulu," which he now values at $25 billion from $15 billion. Sheikh highlighted that this would mean more than 40 percent upside for Fox's stock. Hulu is owned by Walt Disney, Fox and Comcast/NBCUniversal.

Late last year, reports said that Hulu was in discussions to sell a piece of itself to Time Warner in a deal that would have valued the streaming service at $5 billion. The deal never materialized.

About Time Warner, his previous focus list stock from the entertainment sector, Sheikh added: "We make no changes to our Time Warner forecasts or target price and remain bullish on the stock, but now see more upside with Fox, where we see 42 percent upside ... versus 24 percent for Time Warner." 

Hulu plans to launch a new service that provides access to 50-plus live broadcast and cable networks plus an on-demand library and full in-season catch-up for $40 per month. "The product will have wide commercial appeal (the convenience of Netflix plus live) and attractive economics (circa $12 per sub per month in earnings before interest and taxes contribution)," said Sheikh. "After $1.4 billion of cumulative losses since 2008, we think it can help Hulu turn [operating profit] positive in 2018 and generate $2.2 billion per annum by 2020."

The analyst conservatively predicts that Hulu's live streaming will be a 10 million subscriber service by 2020. A more bullish scenario, in which Hulu's live streaming gets to 20 million subscribers, Sheikh believes "would boost the platform's 2020 earnings before interest and taxes to over $3 billion and its valuation to $35 billion."