Google's YouTube Could Be EBITDA Positive in First Quarter 2011

It is now precisely three years since Google (GOOG) announced the acquisition of YouTube for $1.65 billion in stock, and the debate has shifted from potential revenues to lack of profitability of the online video website. Google has publicly stated that YouTube will be become profitable in the near future without quantifying the timeframe.

Based on my own projections for YouTube’s revenues and using every piece of reliable information I was able to put together on costs to deliver online videos and display ads, I am estimating that Google will become EBITDA positive in the first quarter of 2011.

The acquisition of On2 Technologies for $107 million in August 2009 is key to reducing Google’s bandwidth costs with its advanced video compression technologies. Note that I have not made assumptions for the fact that YouTube is layered on Google’s infrastructure. That would have the added effect of reducing its costs.

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Comments

[User 499183:]

"..The acquisition of On2 Technologies for $107 million in August 2009 is key to reducing Google’s bandwidth costs with its advanced video compression technologies. Note that I have not made assumptions for the fact that YouTube is layered on Google’s infrastructure. That would have the added effect of reducing its costs."

Thanks Kenn for your analysis. Let me see if I get this right....
Google who is building an empire for the digital universe of devices to further support their world dominant advertising platform.....
....with a market cap over $165 Billion, pulling in over $17 Billion in annual revenues and earnings of over $21 a share.....
.....who purchased YouTube for $1.65 Billion to further strengthen their empire is now going to spend $107 Million to bring profits to the endeavor....
....which in turn brings more synergies to the advertising empire??

First, it sounds like there are executives at On2 that are not very bright and second, it sounds like their shareholders are getting screwed!
Am I missing something?

Oct 12 08:11 PM

[modelportfo...:]

With the little info we know about On2's reasons for sale to Google, it is hard to believe that the premium paid to On2 shareholders is not fair and reasonable. Remember, we are talking about a share trading below $1 so the percentage premium paid by Google is huge. It is possible that On2 is worth more, but IMO your preamble does not support your conclusion. As the Board of On2 is legally obliged to act in the interests of their shareholders, I am sure they acted reasonably and have a fairness opinion in hand. If you are an On2 shareholder who feels he is being underpaid, take it up with your Board.

Oct 13 09:18 AM

[rwbnyc:]

On2 share price has been manipulated by naked shorting and failure to deliver since its peak of $3.99 in mid-2007. This is a terrible price and Google is taking advantage of the illegal shorting that has occurred. Period.

Oct 13 11:20 AM