Google buys YouTube for $1.6 billion
The deal is the first to value one of the new crop of user-participation websites at more than US $1 billion. In anticipation of the acquisition, investors pushed shares of Google up $8.50, or 2%, on Nasdaq Monday to a closing price of $429.
The stock had already gained 2% on Friday when reports emerged that the deal might be in the works, and in the last 2 trading days, Google has added nearly $4 billion in market capitalization– more than twice what the company has agreed to pay for YouTube.
“YouTube is phenomenally valuable in terms of traffic, and in the internet sector, this is important– just like location is important in real estate,” said Sasa Zorovic, an analyst at Oppenheimer.
You Tube was founded in February 2005 as one of dozens of internet video start-ups. It has exploded in popularity since last November by letting users share short clips of home videos and programming copied from television.
You Tube has been the subject of acquisition speculation for much of this year. Potential buyers included internet rivals of Google such as Yahoo, as well as media companies like News Corp, owner of MySpace.com, and MTV owner Viacom.
“This is a very good move for Google, strategically, as it opens up to them the possibility to grow in one internet area where they were not very big – that is video,” said Steve Neimeth, portfolio manager for AIG SunAmerica Asset Management. “Financially, since Google is sitting on top of $US10 billion in cash, and the price came within the range of expectations, it is probably going to be a non-event.”
You Tube says it serves about 100 million videos daily and has drawn scrutiny from major media companies for copyrighted material appearing on its pages without their consent.
In a move that appears to pre-empt the threat of legal action against You Tube, Universal Music Group and Sony BMG said earlier on Monday they signed distribution deals with YouTube, following a similar agreement with Warner Music Group last month.
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