HI Market View Commentary 10-16-2023
Will this bearish trend in our market continue into October? Probably but earnings might turn it around
Let’s talk about the market and timing –
Does anyone feel like they can time the market?=
Daily basis? NO
Weekly Basis? NO
Monthly Basis? NO
Yearly Basis? NO
I don’t know where the market will go on a daily, weekly, monthly or yearly basis & NIETHER DOES ANYONE ELSE !!!!!
That doesn’t mean I don’t spend a ton of time doing research and I do make my best educated guess AND I trade stocks so I can use the long put to make up some downward movement so we don’t get killed
HI system to make up some money on the way, dollar cost average without asking you for more money, and WHEN the stocks market returns/stocks we make a exponential return
So banks hold a lot of treasuries = Tons of paper losses BAC has 100Billion in paper losses and people are worried that the interest income will be low for BAC
Earnings puts are in play and probably staying
The Big Picture
Last Updated: 13-Oct-23 15:32 ET | Archive
An uncomfortable return to normal
When the Federal Reserve started raising its policy rate in March 2022, the yield on the 10-yr note was about 2.15%. Not that long ago, it was knocking at the door of 5.00% and today it sits at 4.63%.
That is a big move in a short amount of time. Where things sit today looks and feels abnormal for a lot of investors who have only known the low and ultra-low interest rate environment that had become entrenched in the post-financial crisis period.
Well, that period is over, and a new period has arrived. The new period is going to be accented with higher rates — or at least higher than the low rates that were the norm for the past 15 years or so.
For many investors, the higher rates seen today feel extremely restrictive. That is understandable, but the higher rates seen today are really more in-line with what normal looked like in the years leading up to the financial crisis — and those rates, lest we forget, were way down from the double-digit rates seen in the early 1980s.
For a large cohort of investors, then, a 10-yr note yield below 5.00% still looks terrific when measured against rates from the early 1980s. That point aside, where we are today is being described as a period of interest rate normalization or a “return to normal.”
There is something comforting about things being “normal,” so why does this return to normal feel so uncomfortable?
The pace of change in the Treasury market has been rapid, more so than any period over the last 25 years. Things are moving fast, but of course the Fed has been moving fast in raising its policy rate.
The market can tolerate higher rates, as can the economy, so long as there is some stability in interest rates. For instance, from June 1987 to June 1991, the 10-yr note yield traded mostly between 8.0-9.0%. Over that span, real GDP growth averaged 2.7%.
We don’t want to excuse the risk that higher rates can lead an economy into recession, but the point is that there is historical precedent that demonstrates the economy can grow in the face of higher, but stable, rates.
Thus far, the market hasn’t been afforded any semblance of stability, so there is a tendency to think rates are going higher still, which naturally makes participants uncomfortable.
Inflation Still Inflated
Things don’t feel normal today, because the inflation rate doesn’t feel normal. It is higher than it was the last time rates were “normal.”
Things are getting better, but core-PCE inflation, which is the inflation rate the Fed watches most closely, is still well above the 2.0% target rate. There are many pundits, too, who think the inflation rate might not get much lower than 3.0% for some time given the structural shifts in the economy that include, among other things, de-globalization, baby-boomers aging out of the workforce, and higher budget deficits.
From what the Fed is saying, that would mean the policy rate is going to stay high for longer and maybe even go higher. That thought is making people feel uncomfortable.
At the end of 2022, the federal deficit as a percent of GDP stood at -5.3%, much improved from the -14.7% seen in 2020 COVID year, but worse than anything seen between 1998 and 2008.
The budget deficit remains a growing problem for the U.S., which must contend with growing entitlement spending and demographic challenges that include lower birth rates and retiring baby boomers enjoying longer life expectancies than previous generations.
A pressing concern today is that the deficit is as large as it is when the economy is growing. What happens, then, if the lag effect of prior rate hikes, and higher market rates, ends up driving the economy into recession and tax receipts dwindle at a time when more social assistance is needed, and possibly at a time, too, when defense spending may need to be increased?
It’s not a happy thought in terms of fiscal matters, but the bond market — or should we say the bond vigilantes — might be starting to extract a price for large, structural budget deficits.
This latter thought is making people uncomfortable as Treasury yields run up to the “normal” levels seen before the financial crisis.
There isn’t a neat chart we can display to show political polarization, but it’s not a stretch to say U.S. politics has gotten more polarized to the point where “dysfunctional” is a word often used in describing governmental affairs.
We are not taking sides on this matter, but it does matter in terms of how people feel about where things stand from an interest rate perspective, because the governance problems recently invited a downgraded of the U.S. long-term ratings to ‘AA+’ from ‘AAA’ by Fitch Ratings.
The downgrade, Fitch said, “…reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”
Lower debt ratings typically coincide with higher rates, and with political polarization seemingly as intense as ever, there is a sense that it will be difficult, if not impossible, to get back to the normal political order of bipartisanship for day-to-day governance that doesn’t involve war, natural disasters, or pandemics.
So, with rates getting back to “normal” levels, market participants are uncomfortably aware that the political polarization will make it difficult to get the nation’s governmental affairs back in a better working order.
What It All Means
This return to normal is perhaps the most uncomfortable for the generation that came of financial age after the financial crisis.
That is an age that grew accustomed to quantitative easing, not the quantitative tightening we are experiencing now. It is an age that only knew a core-PCE inflation rate that vacillated between 1.0-2.0%. It is an age that thought a mortgage rate under 5.0% was normal. It is an age that saw the effective fed funds rate barely get above 2.0% while spending most of its time closer to the zero bound until now. It is an age that was inclined to think that a 10-yr note yield between 1.0% and 3.0% was the norm.
You can’t blame them. It was, in a manner of speaking, an age they were born into, but the reality is that all of that was abnormal.
What we are seeing today is more normal, even if the way we got here is not. The latter is understandably making investors of all ages feel uncomfortable knowing that things are different from when we last saw normal. That is because a feeling of stability with respect to interest rates, inflation, the budget deficit, and governance is still missing.
AAPL – 11/02 AMC
BABA – 11/16 BMO
BA – 10/25 BMO
BAC – 10/17 BMO
BIDU – 11/21 BMO
COST – 12/14 est
DIS – 11/08 BMO
F – 10/26 AMC
GE – 10/24
GOOGL – 10/24 AMC
JPM – 10/13 BMO
KO – 10/24 BMO
LMT – 10/17 BMO
META- 10/25 AMC
SQ – 11/02 AMC
TSLA – 10/18 AMC
UAA – 11/02 BMO
V – 10/24 AMC
VZ – 10/24 BMO
MU- 12/21 est
Where will our markets end this week?
Lower to flat
DJIA – Bullish
COMP – Bullish
Where Will the SPX end Oct. 2023?
Tues: GS, JNJ, UAL, LMT, BAC
Wed: ABT, FHN, MS, PG, USB, AA, DFS, KMI, LVS, NFLX, TSLA, ZION
Thur: ALK, AAL, T, FCX, KEY, PM, UNP, CSX, ISRG
Mon: Empire Manufacturing
Tue Retail Sales, Retail ex-auto, NAHB Housing Price Index, Capacity Utilization, Industrial Production, Business Inventories,
Wed: MBA, Building Permits, Housing Starts, Fed Beige Book
Thur: Initial Claims, Continuing Claims, Phil Fed, Existing Home Sales, Leading Indicaors,
Fri: Treasury Budget, MONTHLY Options Expiration
How am I looking to trade?
Looking at individual stocks to decide where we can take some profits on puts again.
www.myhurleyinvestment.com = Blogsite
firstname.lastname@example.org = Email
Bank earnings: Industry going to report profitability challenges, reporter says
Big bank earnings are set to kick off Friday, October 13 with Citigroup (C), JPMorgan Chase & Co. (JPM), and Wells Fargo & Company (WFC) among the companies reporting. American Banker Reporter Polo Rocha joins Yahoo Finance Live to discuss what to expect.
“The problem deposits-wise for banks is how much they’re paying for those deposits,” Rocha notes. “There’s more competition among banks to pay more to depositors… That pressure is still continuing… [and] that pressure won’t really die down until maybe the Fed starts cutting rates, and that… date seems to be getting pushed further and further ahead.”
– Bank earnings kick off this week with some big hitters. JPMorgan, Citi, Wells Fargo all set to report before the bell Friday. Investors are going to be closely watching banks lending businesses, particularly. Activity has slowed in recent months thanks to tighter standards and reduced demand as a result of rapid interest rate hikes.
In a note, Bank of America analysts predict JPM, JPMorgan, best positioned to handle the higher for longer environment while there’s some skepticism around Wells Fargo. Also in focus, higher bond yields, which could be particularly problematic for banks with large volumes of securities on their books.
With more on what to watch from banks this quarter, we’ve got Polo Rocha who is the reporter at American Banker. Great to have you here this morning with us. All right, so biggest winner that you’re expecting to emerge from this bank portion of the earnings season.
POLO ROCHA: You know, I think JPMorgan is right. I think it seems analysts think they’re the best position to handle this higher for longer rate environment. I’d say, generally speaking though, the banking industry is going to report some profitability challenges. They’re set to report that they made less money this last quarter than they did the quarter before, which is less than they made the quarter before. And these challenges, I think they’re still making money but they’re going to report less profits for the next couple of quarters, I think.
And so I think analysts are really kind of trying to figure out this quarter, when does that end? Kind of when does that pressure fade? And will there be some sort of catalyst for bank investors to jump back into the sector? Because they haven’t really liked it so much this year.
– Well, what do you expect to see on the deposit side of things? We obviously know this has been always a focal point when it comes to bank earnings. But even especially here within the last couple of quarters given the fallout that we saw in some of the regional banks and also this need for some of these banks to pay higher in order, pay more to those depositors, what are some of the trends that you’ll be looking at this quarter?
POLO ROCHA: So generally speaking, I think bank deposits are fairly stable. I think they might still be dropping here and there over the coming months as the Fed kind of continues to wind down its balance sheet. But really, the problem deposits-wise for banks is how much we’re paying for those deposits. When interest rates were at basically zero, banks didn’t really have to do that much. They didn’t have to compensate their depositors all that much. That really has started changing last year and picked up even more so this year.
There’s money market funds that pay 5.5% to people and corporations that are just looking to park their cash somewhere. So banks are facing a little bit more competition. There’s more competition among banks to pay more to depositors. That pressure is still continuing, it seems to be ebbing a bit. I think some of those pressures are accelerating a little bit less.
But I think with interest rates potentially still rising but at the very least staying high for a while, that pressure won’t really die down until maybe the Fed starts cutting rates. And that date seems to be getting pushed further and further ahead. So on the expense side of things, banks interest expenses are going to continue rising for quite a while.
We’re in the Biggest Treasury Bond Bear Market Ever, Bank of America Says
Government bonds have shed a quarter of their value since 2020, the steepest decline in history
Published October 06, 2023
- The market for U.S. Treasurys has shed almost a quarter of its value since Treasury yields bottomed out in the summer of 2020.
- It’s the biggest Treasury bond bear market in history, surpassing two similar periods in the 19th century, according to a Bank of America research note.
- Exchange-traded funds (ETFs) exposed to U.S. Treasurys, like the iShares 20+ Year Treasury Bond ETF, have been pummeled in recent years.
We may be in the biggest bear market for U.S. Treasury bonds of all time, analysts at Bank of America wrote in a research note Friday.
The market for U.S. Treasurys has shed almost a quarter (24.7%) of its value since Treasury yields bottomed out in the summer of 2020. That’s the biggest percentage decline in U.S. bond market history, and is already six percentage points greater than the next-biggest rout.
You’d have to go back all the way to the 19th century to see comparable declines. One of those bear markets occurred in 1860, just before the outbreak of the Civil War, when prices fell 18.7% from peak to trough. Another occurred in the late 1830s, when prices fell 16% during the tail end of the Jackson presidency and the Panic of 1837.
The biggest bond market rout in U.S. history comes after one of its longest bull runs ever. In the four decades leading up to 2020, an extended period of falling interest rates after the stagflation of the 1970s and early 1980s led to steady returns for government bonds. Valuations peaked in 2020 amid record low interest rates.
Yields on benchmark 10-year U.S. Treasurys have soared since early last year, when the Federal Reserve began hiking interest rates in an effort to combat the highest inflation in more than four decades.
Rising borrowing costs have pushed the 10-year Treasury yield to a 16-year high of 4.8%.1 That’s up from a record low of 0.5% in the summer of 2020, when the Fed slashed interest rates to near zero to stimulate an economy battered by pandemic lockdowns.2
Bond yields and prices move in opposite directions. When interest rates rise, like they have since early last year, existing bonds that offer a lower fixed yield become less attractive to investors. To compensate for the lower yield, prices on these bonds are lowered to entice investors to purchase them.
Treasury ETFs Have Been Pummeled
Some of the biggest bond market ETFs that track the price of Treasury bonds have been pummeled amid surging yields, with those exposed to longer-duration Treasurys recording the steepest losses.
The iShares 20+ Year Treasury Bond ETF (TLT), which invests exclusively in the longest-dated Treasurys, has shed roughly half its value since August 2020, as losses on the 30-Year Treasury bond hit 50%.3
BlackRock. “iShares 20+ Year Treasury Bond ETF.”
Bank earnings kick off with JPMorgan, Wells Fargo amid concerns about rising rates, bad loans
PUBLISHED THU, OCT 12 20234:16 PM EDT
- Higher rates are expected to lead to a jump in losses on banks’ bond portfolios and contribute to funding pressures as institutions are forced to pay higher rates for deposits.
- KBW analysts Christopher McGratty and David Konrad estimate banks’ per-share earnings fell 18% in the third quarter as lending margins compressed and loan demand sank on higher borrowing costs.
- Earnings season kicks off Friday with reports from JPMorgan Chase, Citigroup and Wells Fargo.
American banks are closing out another quarter in which interest rates surged, reviving concerns about shrinking margins and rising loan losses — though some analysts see a silver lining to the industry’s woes.
Just as they did during the March regional banking crisis, higher rates are expected to lead to a jump in losses on banks’ bond portfolios and contribute to funding pressures as institutions are forced to pay higher rates for deposits.
KBW analysts Christopher McGratty and David Konrad estimate banks’ per-share earnings fell 18% in the third quarter as lending margins compressed and loan demand sank on higher borrowing costs.
“The fundamental outlook is hard near term; revenues are declining, margins are declining, growth is slowing,” McGratty said in a phone interview.
Bank stocks have been intertwined closely with the path of borrowing costs this year. The S&P 500 Banks index sank 9.3% in September on concerns sparked by a surprising surge in longer-term interest rates, especially the 10-year yield, which jumped 74 basis points in the quarter.
Rising yields mean the bonds owned by banks fall in value, creating unrealized losses that pressure capital levels. The dynamic caught midsized institutions including Silicon Valley Bank and First Republic off guard earlier this year, which — combined with deposit runs — led to government seizure of those banks.
Big banks have largely dodged concerns tied to underwater bonds, with the notable exception of Bank of America. The bank piled into low-yielding securities during the pandemic and had more than $100 billion in paper losses on bonds at midyear. The issue constrains the bank’s interest revenue and has made the lender the worst stock performer this year among the top six U.S. institutions.
Expectations on the impact of higher rates on banks’ balance sheets varied. Morgan Stanley analysts led by Betsy Graseck said in an October 2 note that the “estimated impact from the bond rout in 3Q is more than double” losses in the second quarter.
Still, others including KBW and UBS analysts said that other factors could soften the capital hit from higher rates for most of the industry.
“A lot will depend on the duration of their books,” Konrad said in an interview, referring to whether banks owned shorter or longer-term bonds. “I think the bond marks will look similar to last quarter, which is still a capital headwind, but that there’ll be a smaller group of banks that are hit more because of what they own.”
There’s also concern that higher interest rates will result in ballooning losses in commercial real estate and industrial loans.
“We expect loan loss provisions to increase materially compared to the third quarter of 2022 as we expect banks to build up loan loss reserves,” RBC analyst Gerard Cassidy wrote in a Oct. 2 note.
Still, bank stocks are primed for a short squeeze during earnings season because hedge funds placed bets on a return of the chaos from March, when regional banks saw an exodus of deposits, UBS analyst Erika Najarian wrote in an Oct. 9 note.
“The combination of short interest above March 2023 levels and a short thesis from macro investors that higher rates will drive another liquidity crisis makes us think the sector is set up for a potentially volatile short squeeze,” Najarian wrote.
Banks will probably show stability in deposit levels in the quarter, according to Goldman Sachs analysts led by Richard Ramsden. That, and guidance on net interest income in the fourth quarter and beyond, could support some banks, said the analysts, who are bullish on JPMorgan and Wells Fargo.
Perhaps because bank stocks have been so beaten down and expectations are low, the industry is due for a relief rally, said McGratty.
“People are looking ahead to, where is the trough in revenue?” McGratty said. “If you think about the last nine months, the first quarter was really hard. The second quarter was challenging, but not as bad, and the third will be still tough, but again, not getting worse.”
Getting to 2% inflation won’t be easy. This is what will need to happen, and it might not be pretty
PUBLISHED THU, OCT 12 20233:15 PM EDTUPDATED FRI, OCT 13 20239:00 AM EDT
- In theory, getting inflation closer to the Fed’s target doesn’t sound terribly difficult. In practice, it could be a different story.
- Without progress on services and shelter, there’s little chance of the Fed achieving its goal anytime soon.
- “You need a recession,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard.
In theory, getting inflation closer to the Federal Reserve’s 2% target doesn’t sound terribly difficult.
The main culprits are related to services and shelter costs, with many of the other components showing noticeable signs of easing. So targeting just two areas of the economy doesn’t seem like a gargantuan task compared to, say, the summer of 2022 when basically everything was going up.
In practice, though, it could be harder than it looks.
Prices in those two pivotal components have proven to be stickier than food and gas or even used and new cars, all of which tend to be cyclical as they rise and fall with the ebbs and flows of the broader economy.
Instead, getting better control of rents, medical care services and the like could take … well, you might not want to know.
“You need a recession,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard. “You’re not going to magically get down to 2%.”
Annual inflation as measured by the consumer price index fell to 3.7% in September, or 4.1% if you kick out volatile food and energy costs, the latter of which has been rising steadily of late. While both numbers are still well ahead of the Fed’s goal, they represent progress from the days when headline inflation was running north of 9%.
The CPI components, though, told of uneven progress, helped along by an easing in items such as used-vehicle prices and medical care services but hampered by sharp increases in shelter (7.2%) and services (5.7% excluding energy services).
Drilling down further, rent of shelter also rose 7.2%, rent of primary residence was up 7.4%, and owners’ equivalent rent, pivotal figures in the CPI computation that indicates what homeowners think they could get for their properties, increased 7.1%, including a 0.6% gain in September.
Without progress on those fronts, there’s little chance of the Fed achieving its goal anytime soon.
“The forces that are driving the disinflation among the various bits and micro pieces of the index eventually give way to the broader macro force, which is rising, which is above-trend growth and low unemployment,” Blitz said. “Eventually that will prevail until a recession comes in, and that’s it, there’s nothing really much more to say than that.”
On the bright side, Blitz is among those in the consensus view that see any recession being fairly shallow and short. And on the even brighter side, many Wall Street economists, Goldman Sachs among them, are coming around to the view that the much-anticipated recession may not even happen.
In the interim, though, uncertainty reigns.
“Sticky-price” inflation, a measure of things such as rents, various services and insurance costs, ran at a 5.1% pace in September, down a full percentage point from May, according to the Atlanta Fed. Flexible CPI, including food, energy, vehicle costs and apparel, ran at just a 1% rate. Both represent progress, but still not a goal achieved.
Markets are puzzling over what the central bank’s next step will be: Do policymakers slap on another rate hike for good measure before year-end, or do they simply stick to the relatively new higher-for-longer script as they watch the inflation dynamics unfold?
“Inflation that is stuck at 3.7%, coupled with the strong September employment report, could be enough to prompt the Fed to indeed go for one more rate hike this year,” said Lisa Sturtevant, chief economist for Bright MLS, a Maryland-based real estate services firm. “Housing is the key driver of the elevated inflation numbers.”
Higher interest rates’ biggest impact has been on the housing market in terms of sales and financing costs. Yet prices are still elevated, with concern that the high rates will deter construction of new apartments and keep supply constrained.
Those factors “will only lead to higher rental prices and worsening affordability conditions in the long run,” wrote Christopher Bruen, senior director of research at the National Multifamily Housing Council. “Rising rates threaten the strength of the broader job market and economy, which has not yet fully digested the rate hikes already enacted.”
The notion that rate increases totaling 5.25 percentage points have yet to wind their way through the economy is one factor that could keep the Fed on hold.
That, however, goes back to the idea that the economy still needs to cool before the central bank can complete the final mile of its race to bring down inflation to the 2% target.
One positive in the Fed’s favor is that pandemic-related factors largely have washed out of the economy. But other factors linger.
“Pandemic-era effects have a natural gravitational pull and we’ve seen that take place over the course of the year,” said Marta Norton, chief investment officer for the Americas at Morningstar Wealth. “However, bringing inflation the remainder of the distance to the 2% target requires economic cooling, no easy feat, given fiscal easing, the strength of the consumer and the general financial health in the corporate sector.”
Fed officials expect the economy to slow this year, though they have backed off an earlier call for a mild recession.
Policymakers have been banking on the notion that when existing rental leases expire, they will be renegotiated at lower prices, bringing down shelter inflation. However, the rising shelter and owners’ equivalent rent numbers are running counter to that thinking even though so-called asking rent inflation is easing, said Stephen Juneau, U.S. economist at Bank of America.
“Therefore, we must wait for more data to see if this is just a blip or if there is something more fundamental driving the increase such as higher rent increases in larger cities offsetting softer increases in smaller cities,” Juneau said in a note to clients Thursday. He added that the CPI report “is a reminder that we do not have good historic examples to lean on” for long-term patterns in rent inflation.
Comcast, Disney hire investment banks to value Hulu as sale process makes progress
PUBLISHED THU, OCT 12 20232:28 PM EDT
- Comcast and Disney have hired investment banks to appraise Hulu.
- On Nov. 1, Comcast and Disney can both trigger an option that will kick off a sale process where Disney will acquire Comcast’s minority stake in Hulu.
- Hulu has a minimum valuation of $27.5 billion, as set in 2019; Comcast CEO Brian Roberts said last month he believes Hulu is ‘way more valuable today.’
Comcast, which owns one-third of Hulu, has hired Morgan Stanley, and Disney, which owns the other two-thirds, has hired JPMorgan Chase. Each bank is tasked with providing a fair value for Hulu — a condition of an agreement set up in 2019 that allows either Disney or Comcast to trigger an option forcing Disney to buy Comcast’s 33% stake.
Spokespeople for Comcast, Disney, Morgan Stanley and JPMorgan declined to comment.
Nearly five years ago, Comcast and Disney set up an unusual agreement after Disney acquired the majority of Fox’s assets in a $71 billion deal, including Fox’s minority stake in Hulu. That deal gave Disney majority control over Hulu, because Disney already owned one-third of the streaming service.
Comcast didn’t want to sell its stake in Hulu to Disney right away because it believed the value of streaming video would increase between 2019 and 2024. Still, Comcast executives also understood the company would no longer have operational control over the future of the company. Consequently, Disney and Comcast worked out a deal where Comcast could participate in the assumed appreciation of the business while also setting a time where Disney could eventually unify ownership and integrate Hulu into its long-term streaming strategy.
Initially, the companies set an option strike date of January 2024. Last month, the two companies agreed to move up the deadline at which Hulu will be valued from January 2024 to Sept. 30. That deadline represents the final date at which Hulu’s valuation will be assessed by both Morgan Stanley and JPMorgan Chase.
On Nov. 1, Comcast can force Disney to acquire its 33% stake in Hulu and/or Disney can trigger its option to acquire the stake from Comcast. That’s expected to happen, Comcast CEO Brian Roberts said at the Goldman Sachs’ Communacopia conference last month.
“We are excited to get this resolved,” Roberts said at the conference. “The company is way more valuable today than it was [in 2019]. And we are looking forward to seeing how that process [plays out].”
Once the option is triggered, Morgan Stanley and JPMorgan will begin their assessments of Hulu’s value. If the two banks’ final valuations are within 10% of each other, the average of the two banks’ determinations will be the price at which Hulu is valued. Disney would then pay Comcast 33% of that value for its stake. The 2019 deal set a floor valuation for Hulu at $27.5 billion.
If the two banks’ assessments aren’t within a 10% range of each other, then Disney and Comcast would agree to hire a third investment bank to make another valuation conclusion. To set the sale price, that third valuation would then be averaged with the previous assessment that’s closest to it.
The valuation calculation process isn’t straightforward. Hulu has 48.3 million subscribers. A pure-play streaming service at its scale has never been sold before. Roberts argued during the Goldman conference that a fair appraisal would also have to include synergy value. Disney’s ownership of Hulu helps prop up Disney+ and ESPN+ subscribers because Disney bundles all three streaming services together.
There is no timetable for how long the valuation process will take or when a deal will get done, but Roberts acknowledged Disney and Comcast both want a resolution sooner rather than later, which is why they agreed to move the option strike date forward several months.
“It will take a little time for this to play out,” Roberts said. “But both companies wanted to get it behind us. So we pulled the date forward.”
Roberts said at the conference Comcast plans to return proceeds from a sale to shareholders.
Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.