Google Stock Forecast: YouTube Is A Crowd-Sourced Gold Mine For Google

motek 1This Google stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Google Stock Forecast Summary:

  • Google is in the news today because it apparently wants to buy Fitbit.
  • In my book, the bigger and more important news is that a Needham & Company analyst believes YouTube might be worth $300 billion as a standalone company.
  • YouTube is a crowd-sourced video sharing platform that is estimated to generate 2019 revenue of $30 billion.
  • Google only paid $1.65 billion in 2006 to purchase YouTube. Spinning out YouTube as a separate company can be hugely profitable for Google.
  • The proceeds from letting YouTube do an IPO can help Google buy more companies like Fitbit. It could also offset the continuing losses of Google’s moonshot projects.

Buying Fitbit (FIT) will be a cakewalk for Alphabet (GOOGL). Alphabet, Google’s parent company, has more than $121 billion in cash & short-term investments. The rumor over Alphabet initiating negotiation to buy Fitbit should not be a reason for you to go long on GOOGL. Alphabet getting involved in smart fitness/health trackers will not move the needle. Ignore the beautiful noise over Fitbit’s alleged sale to Alphabet. Focus on a real ticker mover like YouTube.

The more important news is YouTube could be worth $300 billion as a separate company. Needham & Company analyst Laura Martin made this estimate over YouTube’s potential value as an independent company. Martin argued that YouTube could earn nearly $30 billion this year – $27.2 billion from advertising and $2 billion from subscription fees. Martin’s estimates are believable. Google does not reveal YouTube’s income/revenue numbers. However, it is well-known that the social video platform is tacked under Google’s “Other Revenues” business segment. This YouTube-related division grossed $19.96 billion last year.

Google Stock Forecast
(Source: Statista)

A check on Alphabet’s latest earnings report also revealed that the “Other Revenues” segment made $6.428 billion in Q3 2019. This can grow to $8 billion during this holiday quarter. The shopping season of the October to December quarter means most marketers will greatly increase their ad spending on YouTube. In many countries around the world, YouTube is now the preferred advertising platform over TV or radios. It is not only cheaper to advertise on YouTube than buying 15-second ad spots on TV. YouTube is also accepted as a more efficient advertising platform (than broadcast TV) to market products to 18-35 years old.

Why YouTube Is Highly-Valued

Using 10x EV/Revenue, Martin said YouTube is worth $300 billion as a standalone streaming video company. Her $300 billion valuation is more than twice than Netflix’s (NFLX) current market cap of $123.24 billion. Alphabet’s own market cap is $871.67 billion. Martin $300 billion valuation means YouTube is worth more than a third of Alphabet’s value.

Alphabet could earn a windfall should it decide to spin off YouTube as a separate company. Google only paid $1.65 billion to buy YouTube in 2006. Letting YouTube do an IPO and selling 40% of the company to the public can add as much as $120 billion to Alphabet’s cash position. Getting this new massive amount of money will help Alphabet buy more companies. It can also easily offset the continuing losses of Google’s moonshot projects or ‘Other Bets’. Based on the chart below, Google has an expensive hobby in its Other Bets. Google is losing almost a $1 billion per quarter over its moonshot projects.

Google Stock Forecast
(Source: Statista)

Selling 40% of YouTube to the investing public might also inspire Alphabet to finally pay $50 billion as dividend payments to its shareholders. GOOGL will probably trade higher than $1,500 if and when it starts paying dividends. I share other people’s strong sentiment that Alphabet should start paying dividends as soon as possible. Google makes tens of billions in profits and yet it continues to ignore its basic obligation to pay dividends to its shareholders. Many GOOGL holders are furious that management is willing to lose almost $1 billion/quarter on its Other Bets of moonshot projects and yet it won’t pay dividends.

YouTube Is An Infinite Gold Mine

The undisputed leadership of YouTube in online video entertainment is likely why ValuEngine recently upgraded GOOGL from hold to buy. YouTube, not Netflix, is the real king of streaming video entertainment. The key to success of YouTube is that it is a crowd-sourced platform.

Google only spends on the server hardware ecosystem and bandwidth used on YouTube. Unlike Netflix, which spends more than $12 billion/year on producing original content, YouTube’s content library is created and constantly updated for free by people from around the world.

YouTube is a highly-profitable company because its video content is crowd-sourced. Google only shares a small cut of the advertising money it earns with YouTube content creators through its AdWords affiliate program. This revenue-sharing deal convinced me that YouTube will forever remain as an infinite gold mine for Alphabet/Google.

People around the world will continue to vlog and make tutorials so they can make money from YouTube. Sharing ad money with content creators is a very strong incentive for people to continuously create YouTube videos.

Conclusion

GOOGL is a buy while it still trades at below $1,500. This leading advertising company will remain the biggest beneficiary of the $333.25 billion digital/online advertising industry. YouTube is one of Alphabet’s infinite gold mines in advertising. I am in favor of Google selling 40% of YouTube to the investing public so it can use the proceeds to pay dividends or to buy more companies.

GOOGL will still deliver double-digit revenue growth rate for many years to come. The reason for this is that the digital advertising (which it dominates) is also expected to growth at double-digit CAGR. As per Statista’s estimate, global digital advertising will be worth $517.1 billion by 2023.

My buy recommendation for GOOGL is also partly due to its very bullish one-year market forecast from I Know First. The stock picking AI of I Know First gave GOOGLE a trend score of 203.35. This is considered very bullish because a stock only needs to score 100 to get a bullish signal from I Know First.

Google Stock Forecast

How to interpret this diagram.

Past Success With Google Stock Forecast

I Know First has been bullish on Google stock price in past forecasts. On February 10, 2019, the I Know First stock algorithm issued a bullish prediction for Google stock price. The algorithm successfully forecasted the movement of the Google’s shares. GOOGL have risen by 14.36% in line with the I Know First algorithm’s forecast. See chart below.

This bullish Google stock forecast was sent to the current I Know First subscribers on February 10, 2019.

Here at I Know First, our algorithm has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing daily stock market predictions, currency forecast, gold outlook, world indices, as S&P 500 forecast, and, in particular, Apple stock forecast. Today, we are producing daily forecasts for over 10,500 assets. This stock market forecast generated by our algorithmic trading tool is used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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Please note-for trading decisions use the most recent forecast.