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Google and Twitch: Making Sense of the Rumored $1B M&A Mega-Deal

NEW YORK (TheStreet) -- Rumors are swirling that Google (GOOG) will bet big with Twitch.tv. As reported in Variety, a preliminary deal is taking shape for Google to buy Twitch for more than $1 billion. Google's latest M&A plans are apparently no secret, as the company snaps up disruptive technologies to shake things up.

"We completed another great quarter. Google's revenue was $15.4 billion, up 19% year on year," said Larry Page, CEO of Google. "We got lots of product improvements done, especially on mobile. I'm also excited with progress on our emerging businesses."

Google's stock was trading over $560 late Thursday, down about 0.25% for the day, and essentially flat for the year to date.

Google's video service YouTube will be transformed through the addition of Twitch's live video gaming platform, which has more than 45 million monthly viewers. Susan Wojcicki, a Google ad executive, was named CEO of YouTube earlier this year.

Making way for the rise of the "Second Screen" TV

So what might Google see in Twitch?

Twitch is a kind of ESPN for video games -- a network to discuss and showcase gamers' highlights. The company can provide new, compelling, immersive entertainment experiences, possibly to expand TV viewing to a second screen just as Twitch has done for gaming.

Plus the deal promises a growing audience. Millennials and gamers are a gold mine for advertisers. As of 2014, Twitch accounts for 1.8% of total U.S. internet traffic during peak periods. It's the fourth-largest site for Internet traffic during peak times in the U.S., behind Netflix (NFLX), Google and Apple (AAPL) -- so Twitch may become a rival to the streaming giants.

User-generated content has the benefit that Twitch has very low up-front costs. Twitch currently has 6,100 broadcasting partners, with $5 monthly subscriptions granting users access to content, chat rooms and events.

Valuation measures could pose a difficulty for the company. Twitch's content is, for the most part, user-generated. The question at hand is the value of Twitch's user engagement and activity levels.

Will Twitch fit in with Google X or Google Ventures?

Google looks to acquire companies that can quickly scale up, that offer the right technology and talent, and that target a core functionality that will apply across Google's product offerings.

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