Wall Street loves guys who bet big. Especially if they have brains. Ted Turner. Rupert Murdoch. Sam Walton. Back when the super-store and the 24-hour news channel were the phantasms of the demented minds of men locked in wards with padded walls, these men were considered insane.
There are not many rules of thumb in The World Series of Poker. But, keen observers will note that a shrewd player with a big lead will bet big on the next decent hand that comes his way. He know that if he wins, anyone else who stays to see the last card gets wiped out or falls further behind. The rule cuts another way. A player who is behind bets whatever chips he has left on the next good hand. If he wins, he can draw even with the winner. If he loses, he probably has reached the inevitable end more quickly.
Google's bet in buying YouTube is actually relatively small. Based on media reports, YouTube visitors view 100 million videos a day. The combination of YouTube with Google Inc. (NASDAQ: GOOG) video will account for 60% of the video traffic on the Internet. If video is the "next big thing" on the Internet, the $1.65 billion Google paid is cheap. If it is not, Google has gambled a relatively small part of its chips.
The biggest knock against YouTube is that the site aids and abets copyright violations. Google's lawyers undoubtedly looked at this. And because they are probably as bright as the lawyers at AOL, News Corp, MSN, of Yahoo!, Google took the risk that things could be worked out with big content providers. The rest of the crowd cowered on the sidelines.
AOL, MSN, and Yahoo! Inc. (NASDAQ: YHOO) needed YouTube more than Google did. Wall Street could make the argument that Mr. Murdoch and News Corp have already bought the other big user-generated content site, MySpace.
But Google is in first place -- in search, in revenue growth, and in market cap. With a market value of $131 billion, Wall Street values it well ahead of all of AOL's parent, Time Warner Inc. (NYSE: TWX), which has a market cap of $77 billion, and Yahoo! with a cap of $35 billion. At $276 billion, Microsoft's value is ahead of Google's, but most of that value is attributed to its huge cash-generating operating system business. In terms of the value of online properties, Google is ahead by a mile.
YouTube puts it further ahead. If video advertising takes off, the game is Google's to lose.
AOL, MSN, and Yahoo! are now playing for second place in determining the value of their online businesses. In Google, they are looking at a player whose pot just got much bigger. The chance that any of them have to even up the game is probably gone.
Buying YouTube was risky. But Wall Street loves guys who bet big.
Douglas A. McIntyre is a partner at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
10-10-2006 @ 7:13PM
Gordon Anderson said...
I have been watching Google and if anybody ever had any doubt-these guys are winners. The "risk takers" are usually the winners in the end if only because they have more guts than the other guys and at some point their competitors will chicken out as they did here. This really isn't that much to a risk for Google. The have the largest war chest,the momentum, the cash flow and the "formula" to generate income from advertisng immediately. This is going to be great. Also as one analyst said Googles position is "You can fight us or we can make money for you."