Hey Google, Please Set YouTube Free

Shares in Google-parent Alphabet Inc. have lagged competitors so far this year. There is worry its faltering progress in artificial intelligence means the outlook’s not so hot for its core business of selling ads alongside search results. But one part of its empire, minimally detailed on the company’s filings like some side hustle, shows no sign of being knocked from its throne.

YouTube, the video-sharing site that has turned into an entertainment juggernaut, generated an estimated $45.1 billion in revenue last year and is watched more often on US TVs than Netflix. It is on course to be the biggest “cable” provider in the country by 2026.

With the company’s top brass fixated on solving its lackluster start in the AI wars and revitalizing its cloud business, the best thing for YouTube’s future is to be spun out into a separate concern that can cement its place, as analysts MoffettNathanson describe it, as “The World’s Leading Media Company.”

Needham analyst Laura Martin says “YouTube Inc.” could command a market value as high as $423 billion. Using pure-play streaming competitors as a benchmark, she calculates that, locked within Google, YouTube is undervalued by about 30%. YouTube’s valuation would sit comfortably above the likes of entertainment peers like Netflix Inc. and Walt Disney Co. In the world of social media, it would be worth more than TikTok, Snapchat and Reddit combined.

Most important, YouTube’s value would be determined by its competitiveness in markets it currently dominates rather than in the context of Google’s struggling position in AI against the likes of Microsoft Corp. and Amazon.com Inc. “A lot of investors are worried that generative AI will displace Google Search, so they would be very interested in owning YouTube standalone,” Martin said. “It wouldn’t have the risk of AI undermining the search business.”

400 billion