Google Inc (NASDAQ:GOOG,NASDAQ:GOOGL) has been sitting idly on a gold mine by the name of YouTube for years now. But now the search engine giant is prepping for the extraction phase with two shrewd monetization techniques, each of which make GOOG stock a screaming buy at current levels.
And for GOOG stock investors, it’s about time. Google shares are off 11% in the last year, underperforming the S&P 500 by a staggering 25 percentage points.
That’s all about to change. Two of Google’s recently announced YouTube initiatives should have long-term investors frothing at the mouth for GOOG stock after its recent decline.
YouTube Kids: Building Customers From the Womb
Moving further into the curated streaming video area occupied by Netflix Inc (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN), GOOG on Monday announced the launch of an app specifically for young’uns.
The YouTube Kids will launch on tablets and smartphones — both Android and iOS devices from Apple Inc. (NASDAQ:AAPL) — and feature original content from classic kids programming like Reading Rainbow, Sesame Street and Thomas the Tank Engine.
While investors may be skeptical that an app for kids could be a game-changer for GOOG stock, a quick look at the cold, hard success of children’s content would tell you otherwise. Three of the top six YouTube channels of 2014 were kids channels, according to VentureBeat. Together, the three channels got a combined 874 million views last year … per month.
While GOOG stock owners would love to see the details, Google doesn’t break down revenue from YouTube in its 10-K. That said, 2013 revenues from the online video site were rumored to be around $3.5 billion, or just more than 6% of Google’s annual revenue that year.
While 6% of revenue sure doesn’t sound like much, that was two years ago. YouTube, while wildly popular, hasn’t been much of a catalyst for GOOG stock, as founders Larry Page and Sergey Brin merely hung back and watched the site gain in popularity.
Those days are over.
Monetizing Music With YouTube Music Key
For its second major effort to meaningfully monetize YouTube, GOOG is moving in on streaming services like Pandora Media Inc (NYSE:P) and Spotify, with plans to launch a subscription music service for users wishing to circumvent ads.
The service is called YouTube Music Key, and it’s already in beta testing, which you can freely sign up for already. Like Spotify, you’ll be able to make playlists available for when you’re offline as well.
To give GOOG stock investors some sense of the size of the streaming music industry, Pandora is expected to post nearly $1.2 billion in revenue in 2015, up about 30% from 2014. Spotify, with 15 million subscribers and 60 million active users, is growing at a far more blistering pace, growing both aforementioned numbers by 50% in less than 8 months.
That sort of growth is why I consider Spotify to be one of 5 Home-Run IPOs to Watch for in 2015. It’s also the sort of growth that GOOG stock investors shouldn’t ignore.
Unlike Spotify and Pandora, YouTube doesn’t have to build up a userbase from scratch. Everyone and their mother already uses YouTube — all Google has to do is flip a switch.
And oh, what a lucrative switch it could be.
As of this writing John Divine was long shares of GOOG, GOOGL and AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
