The deal, the first to value a user-participation web site at more than $1 billion, combines two of the most popular Internet brands: Google, synonymous with web search and rapid innovation, and YouTube, a Silicon Valley upstart that has spearheaded the video-sharing craze.
In anticipation of the acquisition, investors pushed shares of Google up $8.50, or 2 per cent, on the Nasdaq on Monday to a closing price of $429.00 - a level not seen since late April. In extended-hours trade following the announcement of the deal, Google stock dipped to $427.63.
The stock had already gained about 2 per cent on Friday when reports emerged that a Google-YouTube deal might be in the works. In the last two trading days, Google has added nearly $4 billion in market capitalisation, or more than twice what the company has agreed to pay for YouTube.
Ahead of the game
For Google, the acquisition of YouTube would thrust the web search leader quickly into the emerging market for video advertising, where it has only a tiny foothold compared with Yahoo and various Web start-ups, analysts said.
Sasa Zorovic, an analyst at Oppenheimer, said:"YouTube is phenomenally valuable in terms of traffic and in the internet sector this is important just like location is important in real estate."
"YouTube has almost 50 per cent of the online video market and combined with Google Video, they'll have close to 60 per cent of traffic," Zorovic said, adding the $1.65 billion price tag was in line with valuations for internet businesses.
YouTube was founded in February 2005 as one of dozens of internet video start-ups. It has exploded in popularity since last November by letting users share short clips of home videos and programming copied from television.
YouTube has been the subject of acquisition speculation for much of this year. Potential buyers included internet rivals of Google such as Yahoo, as well as media companies like News Corp, owner of MySpace.com, and MTV owner Viacom.
"This is a very good move for Google, strategically, as it opens up to them the possibility to grow in one internet area where they were not very big - that is video," said Steve Neimeth, portfolio manager for AIG SunAmerica Asset Management.