YouTube May Be Worth Up to $40 Billion—More Than Twitter

Jefferies report projects $8.9 billion in ad sales by 2016

YouTube, broken out from Google’s overall business, is potentially worth more than Twitter with a valuation up to $40 billion, according to an analysis released today by Jefferies.

The report looked at the growth of digital video advertising and YouTube, a top beneficiary of this growing segment. Jefferies said online video ads would be a $17 billion market in the U.S. by 2017 and that YouTube will grow from $5.9 billion in video ad sales this year to $8.9 billion in 2016.

"With the most viewership by a wide margin (1 billion-plus people each month), the best ad-tech stack, improving content, ubiquity of service (including new extensions into the living room TV) and the skippable TrueView ad format, YouTube makes Google a top pick," Jefferies analysts wrote in their report.

Google splits about half YouTube's ad revenue with the content owners that contribute to the site, according to Jefferies. After the split, YouTube's share of the ad revenue will be $2.8 billion this year, a 48 percent increase from last year. And in 2015, YouTube's piece will be $3.5 billion, the report said.

YouTube and its parent company Google are competing heavyweight Internet players building video ad capabilities, including relative newcomers like Facebook, Twitter and Buzzfeed and classic Internet brands like AOL and Yahoo.

Google bought YouTube in 2006 for $1.65 billion, and at the time there were questions about whether the price was too high. It was unclear how Google would turn the zero-revenue YouTube into its own business.

In recent years, the acquisition has looked like a steal as more YouTube stars have reached mainstream popularity and more advertisers flock to the platform.

Google still does not break out how much of its revenue comes from YouTube, so observers are left with analyst estimates like the one Jefferies released today. In the report, researchers said YouTube is worth between $26 billion and $40 billion, which would make it potentially more valuable than Twitter's current $30 billion valuation. Facebook topped $200 billion in value today for the first time.

Google as a whole is worth nearly $400 billion.

Jefferies highlighted a new ad initiative called Google Preferred, a program that pairs brands and premium video ad inventory, including the top 5 percent of YouTube content.

"YouTube has already inked separate $100 million upfront deals with Publicis and Magna Global," the report said, referring to the commitments Google has pulled from the top media agencies. "These may be the tip of the iceberg as YouTube makes its bid for a piece of the $60B U.S. TV ad market."