Alphabet Inc is worth much more than you think and it is not about its $494B market cap. Bernstein analyst Carlos Kirjner, seems to think that YouTube, the online video streaming platform that Alphabet owns is worth between $67 billion and $86 billion. Of course, no one knows when Google plans to spin off YouTube into a standalone firm; however, adding the lowest/highest price tag of YouTube to the market cap of Google’s parent firm could make a whole lot of difference its share price.
Why is YouTube worth $86B?
Speculations about the true worth of YouTube started making the rounds late last year and it seems that Wall Street has started paying attention. Alphabet doesn’t provide data on YouTube’s metrics during its earnings report but it noted that viewing time on YouTube climbed by 60% year-over-year in 2015.
YouTube doesn’t seem to be slowing down – the platform has more than 1 billion users and its users spend an average of 40 minutes per user per day watching videos on the site. Kirjner also posits that YouTube easily snags the title to being the largest music streaming service in the world. In fact, the report claims that YouTube has about 18.5 billion music streams per day and users spend an average of 24 minutes each on streaming music from the site.
It is important to note that the gains in YouTube’s viewership contrast sharply with the decline being recorded in the conventional TV market where viewing time has dropped more than 24% y-o-y. The fact that viewing time is increasing on YouTube at the expense of viewing time on TV suggests that advertisers won’t mind pushing ad dollars from TV to web.
Nonetheless, the analysts can’t seem to pinpoint why Google is keeping the prospects of YouTube under wraps or why YouTube has not been spun off as a standalone firm. The analysts says, …we are a bit puzzled by the apparent choice to prioritize conductive yarn, drones, fiber, and self-driving cars, while apparently short-changing YouTube’s content investment, and slowing down the development of what could clearly be, and will likely be, one of the world’s largest and most valued media properties”.
Cramer thinks Alphabet is missing an opportunity on YouTube
Interestingly, Jim Cramer also agrees that YouTube is a potentially big product and he contends that Alphabet has never really taken the effort to get the best out of the video streaming platform. Of course, other than ads, Google doesn’t seem to have other ways of making money off the platform. Google introduced an ad-free version of YouTube that lets you watch all videos without ad distractions for a membership fee. Not much has been heard about the ad-free version of YouTube and it is safe to say that it was dead on arrival.
Jim Cramer thinks that Alphabet is making enough money from its other products and it is content with what YouTube brings to the table. Instead the firm should find more ways to milk out gains from YouTube. In his words, “YouTube is not being monetized correctly… Alphabet is doing so well that they haven’t had to focus on it.” He goes ahead to say “when they focus on it, I think it’s going to be fantastic… Susan Wojcicki, who runs it, is a genius and I think there’s plenty of opportunity there.