YouTube Bought For $1.65B
October 21, 2006Google’s amazing foray into online video advertising which the company sees as the next potential gold mine, has been given a huge boost and sent ripples through the industry with its planned acquisition of video-sharing pioneer YouTube Inc. for $1.65 billion – a company that has still to make a profit!
YouTube’s co-founders and other investors will be receiving their payment in Google stock – a currency which has increased by more than fivefold since the company’s initial public offering in August 2004 at the bargain IPO price of $85.
Read the full article from the following link:-
[...] With its recent planned acquisition of YouTube (see Michael’s blog entry on this here), Google is never far from the headlines. It really seems like we can blog about Google all day and still blog about it some more. [...]
I remember reading in the paper a while ago that the founders of YouTube have said that YouTube would not be up for sale. I guess nobody says ‘no’ to $1.65b!
Yeh this YouTube stuff is pretty interesting. And while some may say, this is just like the dot.com bubble, and in many ways it resembles that part of history, pundits are predicting, that this may well only be the beginning of such major-scale acquisitions in this space. Read this article
Woops, here is the link: http://www.smh.com.au/news/Technology/YouTube-garners-big-bucks-but-other-ventures-have-broader-aims-forTV-on-the-Web/2006/10/28/1161749348657.html
Sachin’s article is very interesting in its comments on future major scale acquisitions. I think it is important to remember that on a medium to long term basis, companies (including YouTube) need to be valued on their earning multiples – that is, while it is fine on a short term basis to value for forecast earnings or technology capability based indicators, in the long term these valuations need to deliver cold hard cash.
Whilst there is little doubt that technology businesses will always be valued at much higher EBITDA multiples than commodity businesses etc. and be able to command higher prices accordingly, this differential is purely grounded on a growth v mature/ declining industry basis. That is why acquirers of companies on short term valuations undertake the high risk that their investments will only succeed on the basis of real future earnings ability, whether it be through merger synergies, business model profitability, or the sale of the company’s proprietary assets to someone who can turn a dollar from them!
On that note, I remind you of an old adage, that whilst “a smart person learns from his own mistakes, a really smart person learns from the mistakes of others”. It may be important to remember this, when considering what happened the last time tradional business valuation models were thrown out the window and the stock market doubled the value of mining companies simply when they added .com to the end of their name……..
It certainly has a lot going for it as an investment – huge amounts of traffic, strong branding, dominant market share, a juicy demographic for advertisers – and consolidates the social networking resources that Google offers. It may not have generated revenue to this point but MySpace is a good example of the potential YouTube offers.
The purchase also keeps YouTube out of the hands of rivals such as Yahoo! Google seem to be stacking a lot of faith in advertising-based revenue.