Investors love Netflix because its share price has skyrocketed in the past decade. By disrupting the cable industry, this company now sports a huge market cap of $505 billion (as of Oct. 7).
But it's smart not to forget another streaming powerhouse in Alphabet's (GOOGL -2.07%) (GOOG -1.99%) YouTube. It is estimated that this division has 2.5 billion monthly active users, showcasing its massive reach.
Netflix deservedly gets a lot of attention. But here's why YouTube could be worth more.
Netflix stock's valuation can be applied to YouTube
On Oct. 7, Netflix shares traded at a price-to-sales ratio of 12.5. Applying this multiple to YouTube's trailing-12-month ad revenue implies the Alphabet division is worth $476 billion, not far off from Netflix. But remember that the YouTube sales figure does not include money it's making from subscriptions, which are a significant revenue driver.
YouTube possesses many attractive business qualities
YouTube has a massive network effect. According to data from Nielsen, it commanded 13.1% of daily TV viewing time in the U.S. in August, much higher than Netflix. It doesn't have to pay for content up front, reducing financial risk. And people of all ages with vastly different interests can find virtually unlimited amounts of content that fits their needs.
YouTube has many advantages over Netflix. There are valid reasons the former is likely worth more on a stand-alone basis.
