It might be hard to believe but Google Inc. (NASDAQ: GOOGL) purchased YouTube for $1.65 billion nearly a decade ago. One analyst firm views the current value of YouTube at over $80 billion, and it sees the online video streamer continuing to grow.
Source: courtesy of YouTube
Merrill Lynch analysts Justin Post and Joyce Tran reiterated a Buy rating for Google with a $650 price target. Ultimately the call is based on a solid view of YouTube growth.
At a recent ReCode conference, YouTube indicated that it had revenue growth of 50% annually for the past three years. At the same time, IAB’s U.S. video ad spending data suggest that YouTube is capturing roughly 50% of the video ad market share in the United States.
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While not disclosed, the firm estimates YouTube will add three points of growth to Google revenues in 2015 and, as YouTube grows in scale, the platform should continue to offset deceleration in search.
Based on continued growth in the online video ad market driven by new content, faster Internet speeds and mobile, Merrill Lynch made its estimates for YouTube revenue growth. The firm expects YouTube revenues to grow 34% to $8.2 billion in 2015, as well as to $13 billion by 2017.
According to the report:
YouTube user scale is massive at 1 billion monthly active users in over 75 countries. YouTube’s US time spent per user (per Comscore) is 7hrs/month which trails Facebook, but is higher than Instagram and Twitter, and we estimate users watch 10 videos a day. Assuming a 7x rev multiple (discount to FB, LNKD, TWTR at 8x), we get to a $70 billion potential valuation. Using social user and usage valuation comps, we could get to $80 billion to $90 billion, which is ~20% of total Google market cap.
While Merrill Lynch’s valuation of the video sharing site using comps may be on the bullish side, YouTube has a large competitive moat for content distribution. There are risks that Facebook video’s advertising ramp up could take market share.
Shares of Google were up 0.8% at $536.49 Wednesday morning. The stock has a consensus analyst price target of $645.00 and a 52-week trading range of $486.23 to $598.01.
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