Google Inc (GOOG): Jefferies Group Estimates YouTube’s Market Capitalisation at up to $40 Billion

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According to an article by Reinhardt Krause from Investor’s Business Daily, Brian Pitz, an analyst from the investment bank Jefferies Group LLC (NYSE:JEF), published an analysis of YouTube that sent a message to Google Inc (NASDAQ:GOOG) asking the YouTube’s parent company to break out at least some financial information about the digital product and urging other shareholders to demand the same from the company.

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The article said that Pitz reported YouTube’s market capitalisation similar to that of Netflix, Inc. (NASDAQ:NFLX)’s almost $30 billion, by putting it in a range between $26 billion and $40 billion. The valuation is significantly above the $1.65 billion Google Inc (NASDAQ:GOOG) paid for YouTube in 2006, which was deemed as overpaid by many experts, the article notes. The valuation range means that YouTube accounts for 7% to 11% of Google Inc (NASDAQ:GOOG)’s total market valuation.

Google Inc (NASDAQ:GOOG) has never disclosed YouTube’s financial information, and Pitz is now urging the search giant to change the practice.

“As YouTube grows faster than Google’s business overall, we believe it would be helpful to have more disclosures, at least at the top line, regarding YouTube revenue, and we’d recommend that investors request these figures especially once YouTube reaches 10% of Google’s overall revenue,” Pitz was cited by Investor’s Business Daily.

Jefferies Group LLC (NYSE:JEF) estimated YouTube’s gross revenue to grow to $8.9 billion in 2016 from the expected $5.9 billion in 2014.

YouTube and Google Inc (NASDAQ:GOOG) are facing growing competition from Amazon.com, Inc. (NASDAQ:AMZN), who announced it was buying video game streaming site Twitch.tv for $970 million, a site YouTube had also been interested in buying, according to analysts. Pitz was quoted as saying that YouTube will be able to compete with its rivals, including specialized platforms like Twitch.tv and music streaming companies such as Spotify and Rdio, whose threat is limited to its music video usage and gaming community respectively. He also pointed out massive entry barriers for any potentially new direct competitors, estimating that Google Inc (NASDAQ:GOOG) “spent $7 billion in operating expenses and $4.7 billion in revenue” for YouTube over seven years.

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