Disney just woke up the potential of Hulu

Did you see the Golden Globes this year? I didn’t, honestly, but my wife was watching it upstairs. I know this because I helped make sure NBC’s live streaming worked fine on our Roku.

The Golden Globes are historically a celebration of traditional media: television broadcasts, cable shows, movies, etc. This year marked a turning point, underscored by the fact that my non-tech-savvy wife streamed the event instead of watching it on cable.

Tech companies dominated the awards ceremony. Amazon claimed Best Television Series, Musical or Comedy with The Marvelous Mrs. Maisel, with lead actress Rachel Brosnahan also claiming the Best Actress award in the category. Netflix nobody’s masterAziz Ansari’s won Best Performance in a Television Series, Musical or Comedy.

Finally, the one on Hulu The Handmaid’s Tale it won for Best Series, Drama, with lead actress Elisabeth Moss claiming the Best Actress award for the category.

It was the first time that streaming services had won both of the top two TV categories at the Golden Globes. In the end, the “new Big Three” had won five of the 11 TV categories.

2017 was a big year for online streaming, but 2018 could be even bigger. Both Netflix and Amazon are poised to grow considerably, especially considering the billions they are spending on content creation and acquisition.

Looking ahead to 2018, however, a dark horse has entered the competition, one that will shake up the current pecking order of the new Big Three and offer a solid investment option in the process. That dark horse… or mouse, in this case… is Walt Disney Co. (NYSE: DIS).

the mouse is roaring

In the third quarter of last year, Disney announced that it would be launching its own streaming service. At the time, the idea had merit, but it was largely overlooked as Netflix, Amazon, and Hulu dominated the online streaming market.

Despite having volumes of quality content, Disney still had a lot of work to do. Designing an online streaming platform from scratch is no small feat. If it was easy, there would be a lot more competition in the market.

But the tide changed dramatically in December when Disney announced it would buy Twenty-First Century Fox’s international, film and television assets for $52.4 billion. On the surface, the deal appeared to be a huge content acquisition for the media conglomerate. In one fell swoop, Disney took over the Avatar franchise, The Simpsons TV series and Marvel rights X Men franchise, among many others.

More importantly though, Disney got a majority stake in Hulu. Before the acquisition, Disney, Fox and Comcast each controlled about 30% of the Big 3 online streaming service, with Time Warner’s 10% stake making up the difference. After the purchase, Disney now controls a 60% majority stake in Hulu.

Only Comcast’s 30% stake now stands in the way of Disney owning its own online streaming service. In other words, you no longer need to build one from scratch. Also, Hulu is growing rapidly.

Hulu is a growth engine

Last week, Hulu announced that it had more than 17 million total subscribers between its on-demand service and its live TV plan. According to Hulu, those numbers are up 40% compared to 2016. The company also said its total audience grew to 54 million total unique viewers.

Now, many investors are likely to scoff at 17 million subscribers in a market where Netflix has more than 52 million subscribers. But remember, when we look at investment, we want growth.

Netflix isn’t a bad investment, but it’s not likely to see 40% subscriber growth in a year ever again… especially in the US. The market is too saturated with Netflix accounts for that.

Hulu, on the other hand, has always had plenty of room to grow: it just lacked a controlling backing with the right mix of content ready to go. With the Disney acquisition, that problem is solved, and both Netflix and Amazon have big, good goals on their backs.

The caveat about Disney’s control of Hulu is, of course, Comcast’s stake in the company. But the two seem to have a mutual respect for each other.

Last February, Comcast offered to merge with Disney, an unsolicited offer that Disney clearly turned down. Most recently, Comcast withdrew from the bidding war for the Fox assets, paving the way for Disney to take over.

There’s also the possibility that Disney will go ahead with launching its own branded streaming service. Combine this with the ESPN sports service that Disney is planning, and the company could control three separate streaming services by 2018. That’s a sizeable chunk of the online entertainment market, and one worth investing in.

Invest in Walt Disney stock

Disney shares were far from the best performers last year. But Disney stock has become a momentum play heading into 2018.

Stocks have rallied from their September low, with DIS clamoring for support. Additionally, Disney has pushed its 50-day and 200-day moving averages to a bullish cross, a technical formation that often signals long-term gains for the stock.

The DIS 14-day RSI is hovering around overbought levels. In other words, traders may want to wait for a pullback before entering a position, depending on their tolerance for risk in their portfolio.

That being said, with Disney’s growth potential this year with Hulu, its own streaming services, and its franchises red hot like Star Wars and Marvel, a little risk is worth the potential return.