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Google agreed to buy privately-held YouTube Inc. in an all-stock deal worth about $1.65 billion.
Rumored since last week, the news drove Google’s stock up $8.50 today, following Friday’s nice point gain.
Given Google’s 215 million share float, this acquisition was essentially free.
The deal
instantly catapults Google to the top of the pile in the fast growing world of online video. And if anyone can figure out how to monetize serving ads to YouTube’s users, its Google.
YEAH!! its called the NWO…i knew this was coming when i saw shmidt join the aapl board…dont even try to trace that thinking….
someone was telling me that msft has to buy yhoo now…i dont think they have the marbles….but i would like that move…
“Only a moron would buy the mavericks.”
-DD
(dont mean to get hostile but just seems so appropriate.)
read some were thats is like buying a blank broadcasting channel…ahh…whatever im kinda sick of it already…probably didnt need to do it in the long run…wussies…take that sergey…
“And if anyone can figure out how to monetize serving ads to YouTube’s users, its Google.”
Barry,
With all due respect that I have for you, Google has not been able to figure out how to monetize from their Google Video, Earth, Maps, Picasa … etc… (Search is the only one time wonder; overvalued at astronomical $130 billion market cap – this is like two Boeing companies)
What does make you think they can do it this time? I hope it is not Eric Schmidt’s wishful thinking?
Estimating GooTube Revenues
http://paul.kedrosky.com/archives/2006/10/09/estimating_goot.html
In case you’re in the mood to prove the naysayers wrong (or right) about YouTube’s revenue potential, there is a nice online calculator here for coming up with revenue estimates for Google’s latest acquisition.
It’s hugely sensitive to CPM, licensed content, and audience estimates, but you can come up with numbers from $30m to $300m, depending on how much of an optimist (or pessimist) you are.
GooTube Conference Call
http://paul.kedrosky.com/archives/2006/10/09/gootube_confere_1.html
… Eric starts things off by saying, somewhat archly, that they’re coming to us live from “YouTube World Headquarters”.
… Eric is emphasizing that they will be making “many” acquisitions in video. Oye, there’s the comment that will float a lot of venture-backed boats
… Everyone is welcoming everyone, and the YouTube guys are reading from prepared statements, which is surprising coming from people with a video site showing cats vomiting.
… Sergey is reminiscing about the early days of Google, which is nice, if a little off-putting given Google is only slightly older than
my oldest son.
… So far there has been zero chemistry among the collected company founders.
… Oh-oh, Mary Meeker is up first. Wish I could do live word count. She want to know about integration, also a plan to go to media company, also tagging, also … you know, it’s Mary. Somewhere there is a question in there.
… First useful question: Why do this when you have Google Video? My answer. Google Video is going nowhere. Eric puts it differently, saying it has “lots of interesting partnerships”, possible the most tepid recommendation I have ever heard.
… Question: Why all-stock deal? Answer: Tax-free, and cheaper for Google, of course. And also because we can, damn it.
… Pretty uneventful call so far, other than watching the soft-shoe over what happens to Google Video. No, no, really, we’re not killing it off. Really.
I’m guessing that Google is printing shares to do this deal. Do they hold the record for fund raising by dilution?
The whole Google/YouTube thing reminds me of the whole dot.com thing circa 1999-2000. Astonishing.
Let me guess: all you naysayers said the same thing when News Cp bought Myspace.
How did the crow taste when Google paid them twice over in the ad deal?
I bet Google makes more money from Youtunbe in one year than Cuban will ever make from owning his And1 franchise in Dallas.
And they paid for it with funny money. When this catapults the stock to $500 in the next month or two and they float another secondary, will you guys still think it’s a bad deal?
SJGMoney=Henry Blodget
This bull market is done though it just doesn’t know it yet.
I don’t know if anyone agrees with me but this acquisition of YouTube to me is the signal that the bears have been waiting for in 2006…the wanton throwing away of money for a dubious purchase (at best).
This acquisition is so casual that the forces of the market will answer with a vengeance.
Other bear forces signalling that the top is now is that the slowdown in commodities reflects a slowdown in world growth outside the US, that Greenspan is quoted saying the housing slowdown is abating (his record is horrible…anyone owning a house is totally F’ed as of this moment) and various foreign shares & adr’s were unusually down today (example GOL) means to me that the global slowdown is beginning to be felt in foreign stock prices and that soon they will be coming to the US market.
To me this is as clear as if a bell just rang and this Google thing is the catalyst. US stocks might hold together for a bit as the conditions here probably hold up longer than the rest of the world.
You may disagree and I could easily be wrong, but if I’m right then soon we should start feeling some down days soon.
Barry, are you catching tech fever? Will you be buying anything to participate in the “the fast growing world of online video”? ;-)
But seriously, would you buy Google on a dip? If so, at what price? And what about the rest of the cohort? CSCO, LVLT, NWS.A, AKAM, etc.?
Did Google mention anything about the movie/record companies potentially going after youtube in court for copyright infringement,etc ??
http://www.businessweek.com/technology/content/sep2006/tc20060918_
148703.htm?chan=top+news_top+news+index_technology
What’s that Yogi Bera said about deja vu?
“Yahoo today said its $5.04 billion acquisition of Internet audio and video streaming company Broadcast.com is a done deal, and it will begin integrating multimedia services throughout the Yahoo network. ” July 20, 1999
http://news.com.com/Yahoo+completes+Broadcast.com+acquisition/
2100-1023_3-228762.html
per Johnny V.:
“To me this is as clear as if a bell just rang and this Google thing is the catalyst. US stocks might hold together for a bit as the conditions here probably hold up longer than the rest of the world.
You may disagree and I could easily be wrong, but if I’m right then soon we should start feeling some down days soon.”
I agree with you for the most part, but the market is in “all news is good news” mode at present. I don’t think it will go much higher thru the elections, but I don’t think it will drop either. After that point, it will probably drop regardless of the outcome.
But I’m with you on GOOG, a $30 stock if ever there was one, that is just being watered via stupid acquistions. That’s what happens when Wall Street gets mixed up with cool stuff and pumps it until it isn’t cool any more, nor will it ever meet investor dreams.
hey barry, maybe you should take bigpicture public…
No, it is more like SJGMoney = Cramer
Right after Q1 earnings Cramer makes a statement on TV that GOOG stock is “too cheap” and if you can buy it tomorrow for $600 you are lucky. To justify his non-sense he even uses a formula “conservatively 12 x 5 x 10 = 600; too cheap”. After his statement and Google bogus earnings report (they artificially lowered tax rate for that Q to beat the street) the stock goes from $410 to $450 in after-hours. When Cramer makes such statements I could not resist my temptations (and bogus tax rate) and shorted GOOG next day first thing in am at $440; by afternoon GOOG was at $410 and I covered my short position a few days later at $370. I have not touched GOOG since that time.
Yesterday the clown makes another statement on TV; only this time he states that if GOOG buys YouTube it will be worth $500 ($150 billion market cap, $20 billion more). I do not know how the guy can make statements like this on national TV and get away with it.
GOOG is number one candidate to short on my list. I see this YouTube purchase as a sign of Google’s desperation. The law of big numbers is hitting them. I am awaiting for GOOG stock to ripe and I will probably short it again after the earnings (depending on what kind of accounting tricks they will be using this time and Cramer’s statements)
“hey barry, maybe you should take bigpicture public…”
This is the best way to make a ton of money fast; in a couple of years you are a billionaire.
There are bogus biotech companies with negative earnings for straight three years (for 3 years they have been losing money and do not have any products, just an idea which most likely will never materialize) but their company has a market cap of $500 million.
They have not made a single penny in three years but keep issuing themselves options like there is no tomorrow and having Cramer pumping up their stock on national TV.
Where do you find such a company? There are tons of them on NYSE and Nasdaq, take a look at this one as an example: SNMX
Can I ask a question?
Does anyone actually ever click on those online ads?
I don’t understand the revenue model.
V L wrote:”Google has not been able to figure out how to monetize from their Google Video, Earth, Maps, Picasa ”
A recent Fortune magazine article reported that many users download the google toolbar with some of these other downloads. Users who install the toolbar use google for search and are more likely to click on ads. They claim to have metrics, but who knows.
This does mean many users spend more time on google propoerties, which means they collect more info about us and can supposedly better target ads that we’re more likely to click on.
I’m not sure I believe that, but it does seem like Google wants to be one of the largest ad agencies out there.
paul,
People who visit/submit videos to YouTube have different motivations: mostly attention seeking and to entertain themselves. They are not interested in buying, spending money and clicking on ads. (As an advertiser I would not want to pay for their clicks)
People who do searches are looking for something (often they are ready to buy and spend) and more likely to click on ads to find what they are looking for. (As an advertiser I would not mind paying for their clicks because they are potential customers)
This one of the main reasons as to why Google can monetize from their search and cannot make a dime from Google Video, Earth, Maps, Picasa, etc… I do not see how YouTube will be an exception. Yahoo has a lot of visitors (folks who visit them for their content but not interested in buying) and they are having hard time monetizing from it.
http://www.abstractdynamics.org/linkage/archives/008506.html
The Big Picture: Google Buys YouTube — for Free…
My personal thoughts are that GOOG will kill the thing that makes YouTube fun; rampant posting of copyrighted material. Here’s a test, look for “NewsRadio” TV sitcom episode segments on both video.google.com and youtube.com. Google show up one hit a video of some geezer producer talking. YouTube has 65 episode segments, including my favorite “Super Karate Monkey Death Car” http://www.youtube.com/watch?v=jMZtdLra24E
If you upload a video to video.google.com it takes up to 2 days to get through the Evil Censors. On YouTube it shows up after the file transfer time. YouTube requires the copyright owners to complain, while Google pre-censors. Pre-censoring keeps copyrighted material off (I’m not arguing whether that is good or bad), but that what people are going to YouTube for.
Google Buys YouTube
Barry Ritholtz notes that Google’s acquisition of YouTube was essentially free.
For all the media stories telling us how great Google is and how they will take over the tech world….
well…. Schmidt and the rest dumping shares to the public speaks VOLUMES more than all the media stories combined.
Valuable? Of course. 50 times earnings valuable? My bet is in the long run… the future will be unkind to Google shareholders… something Schmidt and the insiders are slowing unbecoming as the money (for now) rolls in.
But I could be wrong. No doubt. I do not own shares and don’t plan to — that’s my position.
If I was a shareholder of Google, I would be very frustrated by this. YouTude adds value to shareholders???? Stock dilution is not pro value adding. Where is the benefit?
The only problem with Advertisers is that they are first expense that a lot of businesses cut when things head down hill simply because they don’t have to lay off the guy in the next room.
If you have been paying attention, google insiders have already disposed of a good chunk of their own holdings….so they don’t really care if they pee in the pool now.
I think copyright holders have been smart not to go after YouTube for infringement to any great degree. First off, they have no money. You can’t sue a company with nothing in the pocket. Secondly, YouTube has succeeded in creating a new market for online video viewing. This is a long-term benefit to copyright holders.
Now that a deep-pocketed player has entered the picture, the real work will begin to satisfy the legal demands of content copyright holders. I’m sure GOOG knows that.
I agree, however, that many users of YouTube will be turned off by having to sit thru pre-roll ads and/or a potential pay-for-play model.
I don’t see any way that the current version of YouTube would be sustainable, however, with no ads, no payments and no copyright protections.
Longer-term, I see this as a good move for GOOG. They had a choice to build or buy a video platform. They chose to buy. Sure, they could have thrown a few hundred million at Google Video and ultimately perhaps blown YouTube out of the water. But that might’ve taken a few years. Instead, they shell out $1.6B in stock certificates (out of a $150B market cap) and become the market leader overnite. This is loose change for GOOG right now.
Shorter-term—6-18 months—this deal will likely not provide much financial benefit. So GOOG’s stock price will fluctuate on sentiment more than financial fundamentals for the next year or so.
I don’t understand what Google thinks it is going to get out of this. Most of the stuff on YouTube is copyrighted material, and if Google now has to claim responsibility for it, they will have to censor YouTube submissions forcing YouTube to turn in to Google Video. Effectively, google has just bought another domain name for $1.6 billion.
“they will have to censor YouTube submissions forcing YouTube to turn in to Google Video”
Great point! No censorship is another reason as to why YouTube is so popular. People like freedom and they will not appreciated Google censorship.
I see great opportunities for another YouTube like site to appear and for folks to gradually migrating from Google YouTube to these other sites.
Many people in the 90s also were sure that Yahoo could never make any money by being an internet portal/search engine, and that nobody would ever buy things online from Amazon.com, etc.
Most Googlomaniacs (a.k.a Tulipomaniacs) make huge assumptions. They assume that there will be no competition to Google YouTube.
What website will have much greater competitive advantage: the one that censors its users, it takes two days for a video to be posted, it forces you to watch commercials and to click on ads OR another 100% censorship free without ads website (maybe running somewhere on offshore servers)?
What will people select: Google dictatorship/censorship or freedom?
If you take the copyrighted stuff out of Youtube you get a bunch of camgirls and kids doing skateboard tricks. Maybe that gets you going but I go there for the jazz music from the 50s and 60s, cartoons, and music videos they don’t show on teevee anymore. So, does that stuff all go away or can they pay off the copyright holders and still make money?
I’ve been paying attention..
If you already have $1 billion — you don’t need to even bother to sell shares…
And yet Schmidt continues to file SEC 4’s like he can’t get rid of his pile fast enough.
Maybe his stint at Novell taught him things…. or maybe whatever he touches eventually turns to crap.
Novell — that’s humorous.
A question for the veterans: Was google motivated to add new capabilities or were they more interested in buying out the competition? I’m asking because if they are buying patented technology they have a chance to retain a monopoly, but if they are buying out the competition it seems another YouTue could come along in the same amount of time it took to develop YouTube, which is not very long. In that case they are back to square one.
Also, I read that Googles P/E is ~63 with predictions of ~32 next year. When the dust clears, what would a good target P/E be for Google? 20? 15? Do they achieve that by more earnings or by less price?
“SJGMoney=Henry Blodgett”
“SJGMOney =Cramer”
I guess that makes me…. Henry Cramer (cdbaby.com/cd/henrycramer)? That hurts. All you card carrying memebers of the Negative Nellie Lodge with Cuban as your Grand Poobah keep harping on the copyright issues, infringment bullshat over and over, meanwhile Google/Youtube keep signing agreements to alleviate these problems. The music industry/media gets it, you guys don’t. Want to know how Google will monetize this and what the media companies will get from it?
You like this 5 minute clip of Stewey from Family Guy? Great, click here to buy the entire first season on DVD.
You like this song that my 6 year old daughter is lipsyching too along with her Care Bears? Click here and you can buy/download the album and click here to buy this Care Bear in time for Christmas.
Find this video of a cat puking funny? Click here for Seasons 1-5 of America’s Funniest home Videos or here for the DVD of Jackass.
Want to bet GOOG hits $500 before it hits $375?
Does youtube even have a revenue model?
All stock deal means GOOG shareholders are paying for the aquisition right?
Did YouTube Cost Less Than Nothing?
We pointed out the other day that Google had bought YouTube for about 1% of its equity. The Big Picture takes the analysis one step further, noting that after the rise in Google’s share price following the acquisition, Google essentially…
GooTube a go-go
Mark Cuban is eating crow over his statements about the Google-YouTube deal. Boy, I wish he’d apply that headline to his so-called journalism site, sharesleuth, too. That site, by the way, has been strangely dormant since late August. Apparently, timel…
i would like to invest in google or youtube we need a break