Google is valued at $1.6 trillion dollars in market capitalization. YouTube accounts for at least a third of that.

I’ve certainly been a YouTube bull since day 1. Back in 2006, right before Google plunked down $1.65 billion for the video sharing platform:

Then in 2011 when I hailed it the greatest media M&A of all time, before letting the world know that YouTube had gone from a pariah to the belle of the ball (the LA Times followed up eight years later with the same conclusion).

Yesterday I saw Jon Erlichman’s tweet (referencing a 2020 article) touting Instagram’s value at $600 billion, which led me to ask: what would YouTube be worth today?

Note the NY Times’ DealBook article does not actually cite the $600 billion valuation, and suggesting Instagram commands 2/3 of Facebook’s valuation seems unlikely. But it lead me to wonder what YouTube’s value was, and it went on to state:

In the same week that Alphabet drew back a curtain on YouTube’s money machine, we also now have a better sense of how big Facebook’s Instagram subsidiary is — and it’s even larger. Instagram collected about $20 billion in ad revenue last year, Sarah Frier and Nico Grant of Bloomberg report, citing unnamed sources. That’s more than a quarter of all of Facebook’s sales last year — and a sea change from 2012, the year that Facebook bought Instagram, when the service had no ads. YouTube’s reported ad revenue was $15.2 billion in 2020. And that’s a “gross revenue” figure including money meant to be shared with the service’s content creators. (Those video stars also now want a bigger cut from YouTube.)

Today, YouTube is on track to gross $30 billion, doubling in 2 years since it clocked in $15 billion in 2019. I don’t know what Instagram’s revenues are, but the “quality of revenues” are not the same. To Facebook’s favor, Instagram does not share revenue with creators. But in YouTube’s favor, YouTube revenues will increasingly come from the Fortune 500 advertisers and global ad agencies that control the $500 billion annual advertising market.

I asked my research team to dive in and look at comparables to try to size up the value of YouTube within Google:

Using the average P/S multiple of 16.3X and YouTube’s 2020 sales figure of $19.3 billion, we get a valuation of $321 billion.

Not All Comparables Are Equal

But, not all of those comparables are equally “pure.” For one, “only” $20 billion of Google’s $182 billion in sales came from YouTube (i.e. video) which is growing far faster than its search business. Thus, using Google’s own 8.8X P/S ratio to project YouTube’s value would be shortchanging the enterprise value.

The most pertinent comparables would be Snap, Netflix, Roku. Granted, the Snap P/S ratio reflects a younger company that will grow more proportionally, while Netflix and Roku are bona fide comparables as

  • Roku is a leading pure-play AVOD player,
  • Netflix is YouTube’s leading competitor with comparable size, albeit in SVOD (Netflix is also riskier, given the levels of debt, heightened competition in SVOD and the fact that the competition controls much of the IP Netflix relies on).

Netflix pulls the average P/S multiple down, while Snap raises it. As we’re at the mid-way mark of 2021, if we were to use YouTube’s 2021’s sales figure of $30 billion, you get a range of $275 billion to $1.2 trillion.

Realistically, given

  • the forthcoming shift of the $75 billion TV ad market to AVOD environments – with a particular growth area being Connected TVs (CTV) where YouTube remains formidable,
  • Using a forward P/S ratio of 15X
  • YouTube’s $30 billion projected 2021 run rate gives it a $450 billion market cap already.

This isn’t to take anything away from Instagram and Facebook’s wisdom in buying the app, but Google’s acquisition of YouTube remains the greatest media M&A of all time, especially as TV ad spend accelerates its shift to digital.