Nearly 15 years ago, Alphabet Inc.'s (GOOGL, GOOG) Google purchased YouTube for the hefty sum of $1.65 billion. The actual date the news hit was Oct. 9, 2006. That may seem like a small sum for the behemoth that YouTube is today. But back then, the video site had been around for less than two years—even if it was growing like a weed.
- Google purchased YouTube for $1.65 billion nearly 15 years ago.
- It has been a tremendous success for parent company Alphabet, now contributing nearly 11% to overall revenue.
- Big Money keeps plowing into Alphabet shares.
This is back when there wasn't any major video sites on the net. However, when YouTube came on the scene, it made big waves with users … and that growth hasn't stopped.
According to Britannica, the number of videos available passed 25 million in March 2006. That's after the site went live in December 2005. Fast forward to today, and some estimate that there are tens of billions of videos on the platform! That's insane growth.
But there's even more to the story because reports are now saying that YouTube's music service has recently passed 50 million paying subscribers. So, all of this YouTube growth got me thinking: how good of a purchase was this for Google? Logically it was a great investment … but how much so?
To answer that, we'll look at two figures: YouTube's annual revenues and their revenue contribution to Alphabet's overall business. Then finally we'll do what we always do: glance over the Big Money picture of the stock to get some clues for what's ahead.
Up first, let's dive into YouTube's yearly revenues. In 2020 alone, the video sharing-service raked in nearly $20 billion. Compare that to just over $8 billion in 2017:
So, nearly 15 years after Google purchased YouTube, Alphabet is doing nearly 11 times that figure in annual revenue. Talk about a great purchase!
Now let's look at the revenue contribution to Alphabet. In 2017, Alphabet had revenues of nearly $137 billion, so YouTube's revenue was almost 6% of the whole pie. But get this: YouTube represented nearly 11% of Alphabet's $182 billion in revenue in 2020. YouTube has clearly been accelerating Alphabet's growth.
Maybe this is one of the main reasons that shares of Alphabet have been on a tear recently. The stock has gained 259% since 2017. And this happened alongside a lot of Big Money rushing into the shares. I track Big Money ramping into the best quality stocks. And Alphabet has been an all-star. Companies that grow revenues and profits tend to attract smart investors.
Unsurprisingly, GOOGL shares have the qualities that attract that activity. To show you what I mean, here's a chart depicting a few of those times when the stock ramped in price on outsized volumes:
The Bottom Line
So there you have it: YouTube has been a tremendous success for Alphabet. It now represents nearly 11% of Alphabet's overall revenues. Odds are that its contribution will continue to grow.
The stock has been a one-way train higher for years. Companies that make attractive purchases tend to reward shareholders. And that's the case for Alphabet. The Big Money trend hasn't slowed, indicating that shares could break the elusive $3,000 level soon.
Disclosure: The author holds long positions in GOOG, GOOGL in personal and managed accounts at the time of publication.