GooTube is a done deal. Tonight it is announced that Google buys YouTube for $ 1.65 billion in a stock-for-stock deal.

YouTube is a consumer media company for people to watch and share original videos worldwide through a Web experience. YouTube allows people to easily upload and share video clips on www.YouTube.com and across the Internet through websites, blogs, and e-mail. YouTube currently delivers more than 100 million video views every day with 65,000 new videos uploaded daily and it has quickly become the leading destination on the Internet for video entertainment.

There are a couple of things that come to my mind when reading this news. Not only is it one of the first Web 2.0 / Social Software deals above $1 bln., though it is also the first time that although Google has its own video-sharing application, they still buy out the competition.

It also raises again earlier speculations on the potential purchase of Facebook by Yahoo, or other social networking sites. It can open a new wave of acquisitions, that will have a lot of similarities to the billion dollar deals in the dot-com bubble. However, although operating profits are only marginally present, i believe that the current companies have a better business model. One of the main revenue drivers are advertisement incomes, a market recently valued by PricewaterhouseCoopers at an estimated $12.5 billion in 2005.

It also feeds the discussion on the valuation of Web 2.0 companies. NewsCorp bought MySpace last year for $650 million, Sony Pictures Entertainment bought Grouper Networks Inc., a video site for about $65 million. Recently Time Warner CEO Dick Parsons told the Financial Times that media companies wanted to increase traffic to their Web sites to compete with Google, but valuations of $1 billion on YouTube and Facebook were too high. Apparantly Sergey Brin and Larry Page disagreed with him.

So what is then a valuation for video sharing companies? Google paid YouTube today $82,5 per-unique–user, where Sony paid $70 - $120 per-unique-user to Grouper (TechCrunch). I’m curious to see new deals coming up to make a better multiple valuation range possible. One thing is for sure: trying to valuate based on Discounted Cash Flow analysis won’t make any sense. Just like some years ago during the dot-com bubble…

This entry was posted on Monday, October 9th, 2006 at 11:23 pm and is filed under News, Trends, Web 2.0. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.