Most quality-focused investors would agree that Alphabet (GOOGL -2.00%) (GOOG -2.03%) is a top company. It generates tons of free cash flow from its dominating online holdings, including Google Search. The stock is fallen 30% from its peak.
One FAANG stock division may generate significant shareholder value if it were a standalone firm. It’s YouTube. Alphabet should spin off the video entertainment platform for this absurd reason.
YouTube spinoffs can boost shareholder value.
If YouTube were split off, Alphabet stockholders would receive equity in the new company. Investors may benefit. YouTube should be publicly traded because it might be valued highly as a pure-play streaming stock.
YouTube has 2.6 billion monthly active users who search for specific content. In March, Nielsen found that 7.8% of U.S. TV viewers watched YouTube.
YouTube outperforms Netflix in viewing time. 232.5 million Netflix users. The trailing-12-month revenue was $31.9 billion. Netflix has a $146 billion market valuation.
Due to the lackluster advertising market, YouTube’s ad income rose 1.4% to $29.2 billion in 2022. Sales rose 162% from $11.2 billion in 2018, the earliest statistics available. YouTube Premium and Music, with 80 million users (including free trials), are alternative revenue sources besides adverts. These are counted in “Google other” revenue.
YouTube TV, an internet-only cable TV competitor, is also included. “In Q2, YouTube TV surpassed 5 million subscribers, including trialers,” CEO Sundar Pichai stated during the 2022 second-quarter earnings call last July. YouTube TV is more popular than its main competitor, Hulu + Live TV. YouTube will pay $2 billion yearly for NFL Sunday Ticket starting later this year. This will boost subscriptions.
Popular video entertainment service might be valued premium.
Given these advantages, YouTube may be worth more than Netflix. Network effects, the biggest economic moat, make YouTube’s main video-on-demand offering practically unbeatable. YouTube should be valued higher if it were a standalone firm.
YouTube was valued at $300 billion by Needham analyst Laura Martin a few years ago. On Oct. 29, 2019. In the three and a half years afterwards, Alphabet’s stock has risen 67% and YouTube’s revenue has increased, so Martin’s valuation estimate would likely be greater now.
Wall Street sell-side research analysts would cover YouTube, attracting institutional and individual investors. As a result, YouTube will likely appear in many portfolios. YouTube would be worth more than Coca-Cola, Bank of America, and Costco Wholesale at $300 billion, certainly undervaluing it. Alphabet’s $1.36 trillion market cap may be below its real value.