Wall Street Lukewarm To Hulu IPO Plans
NEW YORK — News that Hulu is talking to investment banks about an IPO that could value it at more than $2 billion is a mouth-watering prospect for bankers. After all, the last huge, true Hollywood IPO was that of DreamWorks Animation in 2004.
But the news of a possible Hulu IPO, first reported by the New York Times, was met with caution on Wall Street.
“Hulu is of interest because it’s perceived as being in the last remaining growth sector” of online video, investor and former entertainment industry analyst Hal Vogel said. He added, though, that the appetite for it likely will be only “decent” and “depends on pricing.”
An IPO comes amid signs of improvement in the IPO market in the first half of 2010 following 2008, the worst IPO year on record, and 2009, the second- weakest since the mid-70s.
Plus, it comes amid a volatile stock market and recurring investor fears of a double-dip recession, or a return to recession after a short period of growth.
So why would Hulu, a joint venture of NBC Universal, News Corp., Disney and private equity firm Providence, consider an IPO?
Raising capital could make it more competitive as the online video space has started requiring big investments. Case in point: Netflix’s recent $1 billion a year content deal with premium channel provider Epix.
It’s also a possible exit strategy for PE owner Providence and maybe one or the other entertainment giant behind it.
NBC Uni, which Comcast is planning to acquire, could reduce its stake in an IPO — maybe even give it up completely, if regulators decide Comcast would have too much market power in the burgeoning online video space.
One industry insider also mentioned previous reports of dissension over the value of the owners’ respective stakes in Hulu.
With key content deals with its owners up next summer, according to the Wall Street Journal, making Hulu a more separate entity could help it reach deals that content giants can live with while avoiding family squabbles.
Few Street folks on Monday wanted to discuss the possible going-public deal as various Wall Street firms will hope to play a fee-paying role in it.
Privately though, some observers wondered how a $2 billion valuation would be received given that Hulu doesn’t have a fully developed business model.
It has only just begun the process of adding a $9.99 per month Hulu Plus subscription service to its advertising business.
That said, Hulu seems to have made progress on the financial front in addition to gaining strong traffic.