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YouTube: When Will the Media Stop Raining on Google's Parade?

March 12, 2007 by: Henry Blodget  |  about: GOOG
Everywhere you turn, you get hit with the latest media obsession: "Was YouTube Worth It?" "Did Google (GOOG) Overpay for YouTube?" "Was YouTube a Dumb Move?" or some other thesis-expressed-as-a-question headline suggesting that $1.7 billion was a colossal waste of money and that the acquisition has been a huge disappointment. When will the media get over this?

The facts:

  • For Google, a $1.7 billion acquisition was a tuck-in. The company traded a mere 1% of its market cap to become the instant global leader in a business growing at hyper-speed. It could do ten of these acquisitions before its shareholders even noticed.
  • It is irrelevant what "revenue multiple" Google paid for YouTube. (Today's latest story, in the NYT, was tied to the apparently shocking discovery that Google paid 100x YouTube revenue.) YouTube was so young it hadn't even gotten around to generating revenue yet.
  • Even if one massively haircuts YouTube's traffic numbers, the site's growth has been--and continues to be--phenomenal.
  • The debate about whether YouTube will or will not own 100% of the online video market is ridiculous Who cares if they own 100%? If they even get 50%, they'll still dwarf their closest competitor.

    • gootube1tm_2 Is YouTube guaranteed to have been a brilliant acquisition that will deliver billions to Google's bottom line? Of course not. But if it never contributes a single penny to Google's bottom line will it have been a devastating, regrettable failure? Absolutely not. This isn't AOL Time Warner (TWX) we're talking about. It isn't even eBay-Skype (EBAY). This was a tiny tuck-in acquisition for a massive global behemoth. It was a minor risk with a potentially huge payoff that the company was smart to take.

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