Google Is On2 Something

Big G is watching its pennies these days. It's also watching its penny stocks.

Digging deep into speculative equities this morning, Google (Nasdaq: GOOG  ) bought video-compression specialist On2 Technologies (AMEX: ONT  ) for $0.60 a share worth of Google stock.

That's not a misprint, but it is a healthy premium for On2, which closed last night at $0.383 a share.

Google values the deal at a mere $106.5 million, though that price will fluctuate alongside Google's gyrations, given the all-stock nature of the acquisition.

On2's share price is small, but its client list is thick: Adobe (Nasdaq: ADBE  ) , eBay's (Nasdaq: EBAY  ) Skype, Sony (NYSE: SNE  ) , and Nokia (NYSE: NOK  ) are some of the companies it does business with.

Critics of Google's $1.65 billion purchase of YouTube will suggest that the search giant is throwing good money after bad. Snapping up a video-technology company -- even if it's chump change by Google's standards -- only digs it deeper into the eventual need to monetize chunky video streams.

Well, YouTube is making inroads there. It continues to widen its revenue-sharing partnership program. It's also cooking up new ways to deliver targeted ads. YouTube remains the Web's hottest video-sharing site by far, so clearly the company is finding ways to sell sponsored spots without alienating the Aeron potatoes.

This is a small deal, but Google wouldn't have bothered if it could have built a better mousetrap on its own. It also could have been a tactful purchase, in that Google has made sure to keep On2 out of the hands of a digital video rival.

On2 will be put to good use alongside the growing collection of YouTube servers. The small company specialized in advanced video compression, encoding, and publishing. Its "big video, small files" will serve YouTube well, regardless of which way bandwidth costs are headed.

Then again, this could be the future of Google. Bunt-single acquisitions are unlikely to draw regulator scrutiny, so don't be surprised if future buys are small-fry deals like this.

Hey, Google! Can I interest you in a free Penny Pal newsletter?  

Other ways to get off of my cloud:

Google is a Motley Fool Rule Breakers selection. eBay is a Motley Fool Stock Advisor pick. eBay and Nokia are Motley Fool Inside Value selections. Try any of our Foolish newsletter services free for 30 days. These are the real deals, not the Penny Pal prank from 2003.

Longtime Fool contributor Rick Munarriz isn't calling for a search-engine search party, but he may as well. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 958297, ~/Articles/ArticleHandler.aspx, 8/29/2014 12:35:10 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement