How was YOUTUBE worth so much with no income stream?

Question

I understand the significant value of the company was based on the fact that it has millions of subscribers,but when GOOGLE bought the company, where did they see the value in paying over a billion dollars?

Is offering a free service to generate as many users as possible really the way to go these days?

First off, I think there was a misconception because I know YOUTUBE is valuable and I think the idea is tremendous...i just do not understand how it was evaluated.

Last I heard (when they were purchased) YOUTUBE was earning only $$10 million annually for advertising (although I do not even recall seeing any advertising) and had a couple million in expenses to host all the servers handling the videos...

...so, the point was, where did GOOGLE come up with the $1.2 billion number when any other business doing these revenues would be values far less (these revenues represent less than 1% return, so the value was not in the revenue only).

I know it has specifically to do with GOOGLE taking on all the users that they can hopefully (for them) implement and have latch on to other existing GOOGLE services and things like that, but I am mainly looking for answers as to how they would arrive at that answer.

Thanks for the great answers thus far too!

Answer 1

It is the same theory that created so many millionaires in the Internet stock craze of the late '90s. They see potential, and value the company based on that. So many of the previous Internet companies could never get a revenue stream going, and are now no longer in business. Google, Yahoo, and Amazon are a few of the successful Internet companies, and I would like to think if one of them sees a way to increase revenues and income with a free site like YouTube, there is a gold mine there.

Answer 2

What makes you think it's worth nothing? In fact what the owners of YOUTube did is a very genious idea. They made the site free to attract a lot of internet traffic. This made/makes it popular, then advertisers pay YOutube owners a lot of cash in order to obtain advertising space at the YOU tube website. This advertising space costs a lot and is worth as much money as the traffic that visits the website, which is why Google bought the company.

NO investors are stupid enough to invest in something that won't make them a profit. Google bought the site because it's going to make them a lot of cash in form of internet advertising spaces that they will sell in the YouTube site to various, other large corps.

Answer 3

BECAUSE ALL THE SPONSERS GIVE THEM MONIES TO PUT THERE ADVERTISEMENTS ON THEIR PAGE