Why Yahoo is Interested in Hulu

Hulu’s impressive advertising metrics and inroads into Japan have managed to grab Yahoo’s attention. Yahoo (NASDAQ:YHOO) is one of the prospective bidders for Hulu along with the likes of Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and DirecTV. While Yahoo is being overshadowed by Google in search ads and Facebook on the display side, the company is quickly realizing that its strong Asian presence is its best bet, especially in Japan where Yahoo is dominant.

We currently have a price estimate of $17 for Yahoo’s stock, which is about 30% above the current market price. Display ads constitute about 22% of our price estimate.

Hulu’s Advertiser Metrics are Solid

As an online video streamer, Hulu has managed a good run with advertising with the number of advertisers increasing to 289 in Q1 2011 from 194 last year, at almost 50% growth. ^[1] The company’s subscriber base should rise to about a million by the next month with a projected revenue of $500 million in 2011. Given these statistics, a struggling giant like Yahoo can’t help but notice the potential for improving its own display revenues whose share is being eaten up by the likes of Facebook.

Japan is Yahoo’s Saving Grace

Bad press and market share declines aside, Yahoo Japan remains the dominant search player in Japan, and the company is increasingly trying to take advantage of that presence.

More importantly, Hulu has just launched its online streaming services in Japan (its first non-U.S. market). ^[2] This is BIG news for Yahoo that in recent months has been working frantically to protect this market — refer to our note Yahoo Japan Has the Traffic, But Google Has the Mobile Tech.

With Google trying to further strengthen Youtube and other big prospective bidders like Amazon, DISH and DirecTV, the race for Hulu will surely not be an easy one. But Yahoo does will not give up without a fight, especially in a key market like Japan.

See our full analysis for Yahoo

1. Business Insider: Hulu on Track to Generate $500 million in Revenue This Year [↩]
2. Reuters: Hulu is Said to Draw as Many as Five First Round Bidders, Including Dish [↩]