Google Gains Pay For YouTube

Did the YouTube deal pay for itself? At least for one week it did. On Friday, October 6, 2006, Google shares closed at $420.50 a share. With roughly 304.36 million shares outstanding, that meant the company had a market capitalization of $127.983 billion.

TechCrunch had reported early Friday morning about the rumor, but the hype machine had yet to go into high gear. Of course, like me, many did not believe the likelihood of a deal, but the deal happened. On Friday, October 13, 2006, Google shares closed at $427.30 a share; Google stock closed at $427.30 a share, giving the company a market capitalization of $130.05 billion. The difference between two Fridays: $6.80 a share, or about $2.07 billion. Talking about a deal paying for itself!


Okay before you write outraged emails, if you started with the Monday (October 9, 2006) closing price, Google was in the hole for the week. But look at the hectic trading (trading volumes) on Friday and then on Monday – higher than average volume, it was in anticipation of the deal that stock moved up.

Still, does anyone else see the parallels between Google and Cisco Systems? During the go-go 1990s, Cisco used stock to buy companies; its share price went up, and it bought more. Google could do the same, and continue to gobble (or should we say gooble) up more and more Internet real estate.

Some random observations coming by the way of friends and other readers:

1. The $1.65 billion transaction price is pretty close to the total valuation of Real Networks ($1.86 billion at close of trading on Friday.) Stock market weighing in on the value proposition of Real! (Scott Rafer says so!)
2. Bucks of Woodside, California is so Bubble 1.0. Today deals are done at decidedly down market, Denny’s.
3. Selling their company to Google is the only way public school students can get a gig at elitist Google. Chad got his Bachelors of Arts degree from a little known school in Pennsylvania.
4. Niall Kennedy has put together a brief AJAXy history of YouTube.

So who is next? Our good pal, Mark Evans is doing some permutations and combinations and trying to figure out who is going to be bought! Our best guesses are three: MetaCafe, Heavy.com and Guba. MetaCafe is best fit for Yahoo.

It is very strong outside of the US, just like Yahoo; has elements of social sharing/filtering, which has become the underpinning of Yahoo strategy post Flickr acquisition, and more than anything, Metacafe can be adopted to become the sharing platform for large media owners, aka Terry Semel’s golfing buddies.

Heavy.com and its quasi-raunchy content could be ideal fit for Viacom if the price is right. It marries well with the MTV/VH1 sensibility. We had heard some rumors, but they were just that – rumors. Guba could be a contender, since it has its own piracy protection technology (called Johnny.)

This originally appeared as part of GigaOM Weekly newsletter dated October 15, 2006.

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