Google's YouTube Acquiring Twitch

  • YouTube is reportedly in talks to acquire twitch.tv for $1 billion.
  • Twitch, with its niche focus on gaming and its unique technology will complement the current package of YouTube.
  • The reported price of $1 billion is an attractive deal for Google given the potential of the Twitch platform and its unique technology.

UPDATE: As previously reported YouTube was in talks to buy Twitch. However the talks fell apart and Amazon has successfully completed bidding and acquired Twitch for $970 million, in an all cash deal, as reported on SeekingAlpha.

YouTube acquiring Twitch

Google (NASDAQ:GOOG) acquired YouTube in 2006 for $1.65 billion, at a time when YouTube had no revenue to show. Today the property has gone on to become the most valuable online video property generating close to $3.7 billion in 2013 revenues, with YouTube value being $21.3 billion. YouTube today is reportedly in talks to acquire Twitch.tv, a live-streaming gaming focused website. While there is no official confirmation from either Google or Twitch, reports have surfaced suggesting talks between the two companies. So while the official confirmation will take a while here is what we think about a successful deal and its potential impacts on Google.

YouTube and Twitch: Complementary yet competitive

Twitch, with its niche focus on gaming is vastly different from YouTube as far as content on the two sites is concerned. Twitch allows gamers to live-stream their games along with commentary. This is very popular with active gaming enthusiasts who love to watch the experts play.  It also allows the regular recording and upload of videos, the way YouTube does.

Both the companies would be targeting video advertising dollars making them competitors to that extent. Hence the acquisition of Twitch will do more good to Google than otherwise.

Let’s now look at the reported sum Google is paying for Twitch and the valuations running behind the calculations. Google is reportedly paying $1 billion for the Twitch acquisition, which currently boasts of 45 million unique monthly visitors putting the value/MAU of Twitch at $22. The table below compares the value/MAU (monthly active user) of Twitch with other online advertising platforms.

Platform

MAU (in millions)

Valuation ($, in billions)

Value/MAU ($)

WhatsApp

450

19

42.2

YouTube

1000

21.3

21.3

Twitch

45

1

22.2

The numbers in the table above suggest a fair valuation of Twitch, going by the measures of relative valuation.

Conclusion

The acquisition will be a complementary addition to Google’s online video division of YouTube and going by the reported valuations, it looks set to be a valuable deal for the Mountain View based Internet giant. Another potential of Twitch could lie in the extension of the Twitch technology to products outside the realm of Gaming which, currently a remote possibility, could enhance the value creation for Google. The third major benefit of the acquisition will lie in better ad inventory management on the two platforms in order to ensure they do not compete but complement each other in their revenue generation abilities. Given the value enhancement at YouTube post acquisition by Google, we expect similar significant potential value creation at Twitch.

Google is a buy with a rating of 3.5/5. What do you think about the Twitch acquisition by Google? Feel free to add your comments below.

To see Google’s latest stock price movement, click here (NASDAQ:GOOG)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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