Hulu Revving Up for Bold IPO Move

Hulu is expected to file a prospectus with the Securities and Exchange Commission for its initial public offering by the end of the year. It believes it can raise US$200-$300 million, according to an unnamed source in a Reuters report.

The final decision to move forward is expected to be made in November, the source said. If it does happen, the IPO is likely to be in April or May.

The deal would value Hulu at $2 billion.

Hulu did not respond immediately to the E-Commerce Times’ request for comment.

Social Media Wave

The equity markets have been choppy, with firms in many different sectors shelving IPOs — but they are still receptive to companies such as Hulu.

The next wave of IPOs will be focused on new media with an emphasis on social networks, N. Venkatraman, a business professor at Boston University, told the E-Commerce Times.

“Netflix is leading the space and is capitalized at $8 billion,” he noted. “Clearly, Hulu needs a capitalization reference point to make investments in the technology, as well as attract top talent.”

The timing of the IPO also makes sense, he added. The first or second quarter of 2011 is when many economists believe the economy will have noticeably improved.

There will be a greater focus on technology at that point, predicted Venkatraman. “Media will be one of those sectors that will be redefined by tech, and Hulu wants to be seen as the leader of the pack.”

Changing Environment

Funded by several major television networks and partner media companies, Hulu is navigating a changing online video environment. Netflix, for example, has been making inroads into the market with its video-on-demand and streaming video offerings. Hulu has countered this with its own subscription plan. Then there are the Google TV and Apple TV offerings, which are expected to carve out their own niche in this space.

Hulu is not the leading destination for online video viewers, according to comScore, which in July ranked it 10th after such sites as YouTube, Yahoo, Vevo and Facebook.

Still, Hulu is doing well with advertisers; in fact, it generated more ad views than any other online channel, comScore found.

Data Center Expenditures

Two billion dollars is likely a fair valuation for Hulu, according to Scott Testa, a marketing professor at Cabrini College.

“I think the partners want to take some money off the table with the IPO,” he told the E-Commerce Times. “Also, I think this may be a good time for the partners to go public from a balance sheet perspective. This way they will be able to get a tangible valuation for the company.”

Besides giving the investors an exit for their initial capital, the bulk of the proceeds will certainly be sunk into the company’s business model, continued Testa. “Data center investment is what I would guess — or buying data center space in disparate locations on worldwide basis.”

Google needs significant redundancy to keep YouTube operational, he noted. “When you are talking about video, you are talking about huge, big pipes — and fiber is expensive. It is not like running a website.”

Hulu could also use the proceeds to acquire more compelling video content to better compete with YouTube, Mark Stevens, a partner with Fenwick & West, told the E-Commerce Times.

“Hulu can also expand internationally,” he pointed out, “by partnering with major media players in worldwide markets.”