Wednesday, October 11, 2006

Applying Finance smarts to GooTube

We've been talking about different sorts of financing in my Financing class (good place to discuss these issues, I suppose) so here is some of my new-found knowledge in action:

Google buys YouTube for $1.6B.

Since rumors surfaced last week that Google/YouTube were in talks, Google's stock shot up about $10. Given that they have about 215M shares outstanding that means Google gained about $2.15B on the news alone. Which means that not only is the deal for free, they had actually at one moment profited about $500M from the deal (in addition to getting YouTube.)

I'd love to say this was all my thinking, but I stole it practically word for word from here

This all makes sense after the fact, of course; the GooTubers couldn't have known before the deal that the stock was going to bolt the way it did (although, they may have suspected!)

A wise classmate of mine reminds me that it is always a good idea to analyze your ex-ante (before the fact) reasons for doing an investment once the investment is completed. He goes on to say that even if the investment works out in the end (ex-post), it is rarely for the same reasons you had initially considered.

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