Google acquisition of YouTube in 2006 for $1.65 billion. The deal will be analyzed in both the financial and strategic contexts. With respect to the former, the net present value of YouTube's future cash flows will form the basis of the evaluation. With the latter, there are a number of considerations including the market position of each of the companies at the time of the merger and during the post-merger period. The analysis leads to the conclusion that YouTube was a money-losing entity in 2006 and remains so today, giving it a negative intrinsic value. The company does have significant strategic value for Google however. While this strategic value may be difficult to quantify, it should be taken into consideration, especially since Google could easily afford the deal.

Introduction

In October, 2006, Internet giant Google purchased the young startup YouTube for $1.65 billion. Despite being only a year-and-a-half old, YouTube...
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