Monday's $1.65-billion (U.S.) takeover of a profit-unencumbered, legally dicey dot-com startup may prompt some investors to Google the phrase “tech bubble.”
Analysts said Google Inc.'s deal to buy YouTube Inc. may pressure a few other big names to pay a hefty premium to secure choice assets in the area of on-line and digital media, with Microsoft Corp. and Yahoo Inc. topping the list of potential buyers. However, there's little evidence that the technology sector in general is catching the dot-com fever of the late 1990s.
Google's stock took a modest hit in the wake of the all-stock purchase — slipping $2.35 (U.S.) to $426.65 on Nasdaq — and the stocks of other big Internet portal operators also slipped, as the Street digested the sobering price paid for YouTube, a 19-month-old, video-file-sharing website that has taken the Internet by storm. Yahoo Inc. lost 56 cents to $24.47, while Microsoft fell 3 cents to $27.69.
“I was stunned by the acquisition price,” said John Ruffolo, leader of the technology, media and telecom practice at accounting and consulting firm Deloitte & Touche.
The YouTube deal suggests that the big Internet companies are willing to pay dearly for an established Web audience — YouTube streams more than 100 million videos a day — in hopes the audience will drive advertising and pay-per-view services. “Google is buying eyeballs, figuring it knows how to convert those into money,” Mr. Ruffolo said.
With Google having snapped up the pick of the litter, other contenders for established Web audiences are going to have to fight it out for what's left, analysts said.
“I'd watch for Microsoft. I'd watch for Yahoo,” Mr. Ruffolo said.
The next big asset up for grabs could be Facebook, an Internet social-networking site similar to MySpace but directed toward university students. Yahoo is said to be in talks to buy Facebook, which purportedly carries a $1-billion price tag.
That compares with the modest $580-million that News Corp. paid for the bigger MySpace last year, evidence that the price tag for locking up an Internet audience is soaring.
“If you look at MySpace, it looked expensive when News Corp. bought it. But now it looks pretty good,” said Kona Shio, managing partner at Conscius Capital Partners in Montreal.Among Canadian startups, Deloitte's Mr. Ruffolo suggested that QuickPlay Media Inc. of Toronto, which makes technology for putting video content on mobile media devices such as cellphones, could attract interest from big-name suitors. He said the company recently lined up financing from Silicon Valley investors, which should put it on the radar for U.S. buyers.
Meanwhile, the buzz over the Google-YouTube deal created little more than a ripple in the broader tech market Tuesday, evidence of the relatively stable, if less than exciting, profile the post-bubble incarnation of the sector has established with investors. The technology-dominated Nasdaq composite index slipped 3.66 points to 2,315.43, while Toronto's S&P/TSX information technology subindex gained 1.2 per cent.
The prices and valuations in the sector have been on the rise in recent months, after dipping in the summer amid concerns that rising interest rates would constrain business and consumer spending. The Nasdaq remains below it highs of the year and is still less than half its tech-bubble peak of 5,048.62 in early 2000. The forward 12-month price-to-earnings multiple, at 28 times, is still down from its spring peak of 31 times, and just above the past year's average of 25 times.
The Canadian tech sector has also recovered from summer lows and has seen forward P/Es creep up to almost 35, from less than 20 a year ago. Still, prices in the sector have only just returned to their levels at the beginning of 2005, are roughly 35 per cent below their 2004 highs and are a fraction of the 2000 peak.
