Key Takeaways
- While social media claims about YouTube’s valuation are often exaggerated, the underlying premise that it is a mispriced asset within Alphabet holds significant merit.
- On a like-for-like revenue basis, YouTube’s advertising business is now comparable in scale to Netflix’s entire subscription operation, with both generating approximately $33-$35 billion over the last twelve months.
- A simple price-to-sales comparison with Netflix is flawed due to different business models and margin profiles. However, a more nuanced sum-of-the-parts analysis suggests YouTube’s standalone valuation could comfortably sit between $300 billion and $450 billion.
- YouTube’s strategic value extends beyond advertising, with growing subscription revenues and the defensive moat provided by Shorts creating a powerful, diversified media asset whose full potential is masked by Alphabet’s conglomerate structure.
The notion that YouTube is one of the most underappreciated assets in public markets is not new, but a recent framework from analyst Alexis Ohanian has reignited the debate. The core argument posits that if YouTube, or even just its Shorts feature, were valued on a similar sales multiple to Netflix, its standalone worth would be astronomical. While the specific figures used in such thought experiments often warrant scrutiny, the underlying thesis is compelling: the true scale and strategic value of YouTube are fundamentally mispriced within the sprawling conglomerate of Alphabet.
To assess this claim properly requires moving beyond simplistic comparisons and analysing the constituent parts. By examining the actual revenue data, applying more appropriate valuation methodologies, and considering the platform’s strategic growth levers, a clearer picture emerges of a media titan whose financial contribution is only just beginning to be fully appreciated.
Putting Revenue Scale into Perspective
The first step in any credible valuation exercise is to establish an accurate baseline for revenue. The comparison with Netflix is particularly instructive, as both are dominant forces in video consumption, albeit with fundamentally different business models. Examining their most recent performance over the last twelve months reveals a surprising parity in scale.
While some claims have suggested YouTube Shorts alone generates revenue rivalling Netflix, public filings do not support this. Alphabet does not break out Shorts revenue specifically. However, total YouTube advertising revenue is a matter of public record and provides a more solid foundation for comparison.
| Metric | YouTube (Alphabet) | Netflix |
|---|---|---|
| TTM Revenue (to Q1 2024) | $32.93 billion (Ads only) [1] | $34.93 billion [2] |
| Primary Business Model | Advertising | Subscription |
| Current Market Cap | N/A (Part of Alphabet’s ~$2.2T) | ~$290 billion |
| Implied TTM P/S Ratio | N/A | ~8.3x |
The data shows that YouTube’s advertising machine now generates revenue on a scale directly comparable to Netflix’s global subscription empire. This parity alone is a remarkable testament to YouTube’s monetisation capabilities, especially given that its content costs are structurally lower, subsidised by a global creator ecosystem rather than shouldered entirely in-house.
The Valuation Conundrum
Applying Netflix’s price-to-sales (P/S) multiple directly to YouTube’s revenue is an intellectually tempting but ultimately flawed shortcut. The market awards Netflix a premium multiple based on its recurring subscription revenue, original content library, and perceived pricing power. An advertising-led business, even one as dominant as YouTube, typically commands a different multiple due to its cyclical nature.
A More Nuanced Valuation Approach
A sum-of-the-parts (SOTP) analysis is a more fitting framework. Here, one attempts to value YouTube as if it were a standalone entity. Analysts often assign a P/S or EBITDA multiple based on a blend of media and technology peers. Given YouTube’s market position—it now accounts for more watch time on US televisions than any single cable or broadcast network [3]—a multiple somewhere between a traditional media company and a high-growth tech platform seems appropriate.
Applying a range of multiples to YouTube’s TTM ad revenue of $32.93 billion provides a more realistic spectrum of potential valuations.
- Conservative (6x P/S): $197.58 billion
- Moderate (8x P/S): $263.44 billion
- Bullish (10x P/S): $329.30 billion
This simple calculation, however, omits other crucial revenue streams. Alphabet’s “Subscriptions, Platforms, and Devices” segment, which includes YouTube Premium and YouTube Music, generated over $10.7 billion in Q1 2024 alone [1]. While YouTube’s share is not disclosed, it is a significant contributor, adding another layer of high-quality, recurring revenue to its profile. If we conservatively attribute just one-third of that segment’s annualised revenue (~$14 billion) to YouTube, its total revenue base approaches $47 billion. At an 8x multiple, this would imply a valuation closer to $376 billion, bringing the back-of-the-envelope calculations into sharper alignment.
Beyond the Numbers: Strategic Moats and Future Catalysts
Valuation is not merely a function of current revenue. YouTube’s strategic position is arguably stronger than any of its media peers. Shorts, for instance, should not be viewed only through the lens of direct monetisation. It serves as a powerful defensive moat against TikTok, a top-of-funnel for user acquisition, and a mechanism to keep users within the YouTube ecosystem, where they can be directed to more easily monetised long-form and Connected TV (CTV) content.
Furthermore, after years of heavy investment, Alphabet’s management has confirmed that YouTube is “very profitable” [4]. This profitability, combined with its dual revenue streams from both ads and subscriptions, makes it a uniquely resilient media asset. It can thrive in economic environments where consumers cut back on subscriptions (benefiting the ad-supported tier) and in periods where advertising budgets are tight (leveraging its subscription base).
The ultimate question for investors is how this value might be unlocked. The “conglomerate discount” applied to Alphabet means its shares do not fully reflect the standalone potential of its component parts like Google Cloud or YouTube. While a spin-off remains highly unlikely in the near term, pressure from a shifting market narrative could force management to provide greater transparency. This alone could serve as a catalyst for repricing.
As a final speculative thought, consider a future where YouTube leverages its global creator network to move into interactive commerce and personalised content commissioning on a mass scale. In such a world, it would transcend its identity as a media company, becoming a hybrid of entertainment, education, and commerce. At that point, a valuation comparison with Netflix would seem not just inadequate, but entirely irrelevant.
References
[1] Alphabet. (2024, April 25). Alphabet Announces First Quarter 2024 Results. Retrieved from https://abc.xyz/investor/static/pdf/20240425_alphabet_q1_2024_earnings_release.pdf
[2] Netflix, Inc. (2024, April 18). Q1 2024 Letter to Shareholders. Retrieved from https://s22.q4cdn.com/959853165/files/doc_financials/2024/q1/28a8d795-857a-4723-8684-9043015f859a.pdf
[3] Nielsen. (2023, August). The Gauge: Streaming Dominates TV Viewing in July, Led by New Category Highs for YouTube and Netflix. Retrieved from https://www.nielsen.com/news-center/2023/the-gauge-streaming-dominates-tv-viewing-in-july-led-by-new-category-highs-for-youtube-and-netflix/
[4] Bar-on, T. (2023, September 7). Google’s CEO says YouTube is ‘very profitable’ after an analyst asks why the company hasn’t broken out its financial results. Business Insider. Retrieved from https://www.businessinsider.com/google-ceo-youtube-very-profitable-analyst-breakout-financial-results-2023-9
alexis04613. (2024, June 21). [And yet.. $GOOG’s YouTube is still mispriced]. Retrieved from https://x.com/alexis04613/status/1804108865660891500
