Do the Math

Interesting article in The Wall Street Journal on the economic rationale behind Google's purchase of YouTube. [Subscription required.]

Google paid about $23 per YouTube unique visitor, 10 cents per trailing 12-month page views and 10 cents per trailing 12-month minutes of use, Bear Stearns analyst Robert Peck said. In comparison, Peck said, Google trades at 14 cents per trailing 12-month page views and 37 cents per trailing 12-month minutes of use.

"This is reasonable in our view, given Google's longer operating history and its more favorable earnings and free cash flow profile," Peck wrote in a research note. YouTube, which was only launched in 2005, gets about 34 million unique visitors each month, according to Nielsen/NetRatings.

... Peck also compared the YouTube deal to Google's partnership with MySpace and the $1 billion price tag that Facebook reportedly is seeking. In terms of unique visitors, YouTube is priced at a premium to the MySpace deal - which is only a partnership, not an acquisition - but at a discount to Facebook. On page views and times online, YouTube is priced at a premium to both.

... Citigroup analyst Mark Mahaney projected YouTube generating $224 million in 2007 revenue and $112 million in earnings before interest, taxes, depreciation and amortization, which would be a percentage of his 2007 Google estimates for $10 billion in revenue and $6.4 billion in Ebitda.

Mahaney noted that the $1.65 billion price tag valued YouTube at 14.7 times Ebitda, below the 19 times 2007 enterprise value/Ebitda multiple that Google currently trades at.

"Not bad," Mahaney said. Citigroup has provided banking services to Google.