Analysts at investment firm Needham estimate YouTube’s value at $455 billion, which is 50% higher than Netflix’s market capitalization. However, experts believe that the true value of video hosting is underestimated due to the structure of the Alphabet holding, which owns YouTube.
The Impact of Alphabet’s Structure
Alphabet’s structure makes it difficult to fully value its disparate businesses, especially YouTube, according to analysts Laura Martin and Dan Medina of Needham. They argue that the streaming giant’s separation from its parent company could benefit investors looking to focus on YouTube’s dominance in streaming.
“There’s this hidden value in YouTube that people can’t trade separately, and so it’s locked up in the Google conglomerate, which also has a lot of other risks,” Martin said. She also mentioned that the potential split would benefit those who admire Alphabet’s role in AI development. Needham estimates that even selling a 5% stake in YouTube could add $15 to Alphabet’s share price.
Alphabet’s conglomerate structure has long been criticized for hiding the true value of its various businesses. Analysts and investors are noting YouTube’s dominant position in the streaming market and are forecasting continued growth in advertising revenue. Bloomberg estimates YouTube ad revenue will grow nearly 17% to $37 billion in 2024 and another 14% to $42 billion in 2025. By comparison, Netflix’s expected revenue in 2024 is about $38.7 billion. We’ll keep you updated on these developments.
The Future of YouTube and Alphabet
While Netflix is still the leader in most TV categories, TD Cowen’s review of streaming platforms found YouTube isn’t far behind and is the top choice for viewing content on mobile devices. Analysts at the world’s largest investment bank, Goldman Sachs, also acknowledge the importance of YouTube to Alphabet’s stock growth. In a recent note dated July 8, they noted that revenue from the subscription segment is a key growth driver and should increase in the coming years. The company confirmed that now is the time to take Alphabet shares and raised its price target, partly due to higher forecasts for YouTube advertising revenue growth, notes NIX Solutions.
Needham’s Laura Martin sees potential in other parts of Alphabet’s business, such as its ad tech segment. She believes that breaking Alphabet into separate companies could lead to an increase in overall value, saying that “Alphabet in parts will be worth more than as a whole.”