More Financial Insanity

Thursday, November 23, 2006
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Google has purchased YouTube for $1.65 billion.

The price tag for YouTube, just to put the investment in perspective, is what Target paid for 257 Mervyns department stores and four distribution centers in 13 states, and just a bit more than WPP Group paid for the Grey Global Group advertising network with 10,500 employees in 83 countries generating $1.3 billion in revenue. Those, of course, are both profitable enterprises with vast fixed assets. YouTube’s fixed assets pretty much consist of a video interface and a cool retro logo. So why is it worth nearly six times the gross domestic product of Micronesia?

The answer is that it is not worth the price. Nowadays, most acquisition prices simply cannot be justified. Google will need a hell of a business model in order to save face on this one.

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