* Yahoo gets a platform in social media
* Analysts say price looks high
* Yahoo shares up 1 pct
* Tumblr's young founder now a multimillionaire
By Alexei Oreskovic and Jennifer Saba
SAN FRANCISCO/NEW YORK, May 20 Yahoo Inc
will buy blogging service Tumblr for $1.1 billion cash,
giving the Internet pioneer a much-needed social media platform
to reach a younger generation of users and breathe new life into
its ailing brand.
The deal, announced on Monday, is a bold bet by Yahoo Chief
Executive Marissa Mayer to revitalize the company by co-opting a
Web property with strong visitor traffic but little revenue.
The combination of Yahoo and Tumblr creates an online
powerhouse with roughly one billion users, which will draw in
more advertisers and help Yahoo keep visitors on its properties
for longer periods of time, Mayer told Reuters in an interview.
story for us," she said.
Analysts say Yahoo appeared to be overpaying for a business
that has never posted a profit, makes a fraction of Yahoo's
sales, and may not contribute significantly to revenue for
years. But the company, rebuffed by the French government when
it tried to pay $1 billion for video site Dailymotion earlier
this year, had to do something to plug a hole in its social
Yahoo made clear it was sensitive to concerns that it might
damage Tumblr by making it less irreverent or more corporate.
"Per the agreement and our promise not to screw it up,
Tumblr will be independently operated as a separate business,"
Yahoo said in a statement.
The deal will make Tumblr founder and CEO David Karp, 26, a
Tumblr is one of the Web's most popular hubs of so-called
user-generated content, drawing young people who use the
platform to post pictures and text. It has more than 100 million
blogs in its network, ranging from "White Men Wearing Google
Glass" - a collection of photos poking fun at the early adopters
of the wearable computing devices - to housing-focused "The
Though Yahoo remains one of the Web's most popular
destinations, it has seen its revenue shrink in recent years as
consumers and advertisers favor rivals such as Google Inc
and Facebook Inc. The deal is expected to
increase Yahoo's audience by 50 percent.
The acquisition, which will use up about a fifth of Yahoo's
$5.4 billion in cash and marketable securities, is the largest
by far since Mayer took the reins in July with the goal of
reversing a long decline in Yahoo's business and Web traffic.
RBC Capital Markets analyst Mark Mahaney called it a
"long-shot/long-term investment" but one that fits into Mayer's
"(Yahoo's) fundamentals have been subpar for numerous years,
in part because of the company's missing presence in Social and
Mobile. Tumblr may help (Yahoo) develop that presence," Mahaney
said in a note.
(Mayer puts exclamation point back in Yahoo )
(Yahoo's flat Q1 on sliding display ad sales )
While Tumblr is certainly popular - it has tens of millions
of monthly unique visitors in the U.S. - analysts questioned
what kind of contribution it will make to Yahoo revenue, since
advertising on the site is in its nascent stages.
Media reports have pegged Tumblr's 2012 revenue at $13
million. The privately held company, based in Manhattan, does
not disclose its financial results.
Yahoo expects that Tumblr will help boost revenue by 2014,
Ken Goldman, Yahoo's chief financial officer, said on a call
with analysts. He did not provide specific numbers.
"Even if revenue was $100 million, it means Yahoo paid 10
times revenue," said BGC Financial analyst Colin Gillis. "Ten
times is what you pay to date the belle of the ball. It's on the
outer bands of M&A."
Yahoo could quickly boost Tumblr's revenue by combining the
website with its own sales force, said Pivotal Research Group
analyst Brian Wieser. But loading Tumblr up with banner ads
risks alienating its users and probably wouldn't provide a
significant lift to Yahoo's overall revenue, he said.
"It's not clear that this deal will be favorable from a
return-on-capital perspective," Wieser said. "One billion
(dollars) for one company is a big bet."
Gillis and Wieser were contacted on Sunday after the deal
was reported by the online publication All Things D.
Mayer, on the conference call, described the Tumblr deal as
an exception and said Yahoo was not necessarily planning lots of
similarly sized deals.
Yahoo is one of several companies that have coughed up
considerable money for buzz-worthy start-ups that hold promise.
Facebook bought the popular social media photo site Instagram
for $1 billion last year. In 2006, Google paid $1.6 billion for
Yahoo's track record in acquisitions is patchy. Its $3
billion-plus purchase of Geocities - a free service that hosted
personal home pages for consumers and once ranked among the
most-trafficked websites - stands among the most glaring of its
failed deals. Yahoo shut down the service in 2009.
"It's not lost on me that there were some large acquisitions
done in Yahoo's history that did not go well," Mayer said in the
interview with Reuters. She said Yahoo now has a completely
different management team, committed to making the Tumblr deal
The Tumblr team will remain in New York, Mayer noted, partly
because she believes the most successful deals in the Internet
industry, such as Google's YouTube acquisition, have thrived by
letting the acquired company operate somewhat independently.
Shares of Yahoo were up 27 cents, or 1 percent, at $26.78 in
afternoon trading. Through Friday's close, the shares had risen
70 percent since Mayer became CEO.
One question Yahoo may have to address is Tumblr's
reputation as a home for pornographic blogs. At one point in
2009, about 80 percent of Tumblr's top sites had something to do
with adult content. Today that number is closer to 5 percent,
according to Quantcast data, but the old image lingers.
Mayer, on the conference call, brushed off concerns that
Tumblr has content that might not appeal to advertisers, saying
the ability to reach more people is "really exciting." She said
Yahoo's targeting tools would allow advertisers to zero in on
specific demographics and content.
One area where Yahoo plans to ramp up advertising: Tumblr's
dashboard, the main landing point, akin to a newsfeed.
Dealing with that and other issues may fall to Karp, who
founded Tumblr in 2007 and will remain CEO.
Karp, a self-taught programmer who left high school in favor
of home schooling, did not take part in Mayer's conference call.
Media reports have suggested his take in the sale of Tumblr
would top $200 million.
In a 2012 interview with The Guardian, Karp seemed to be
less interested in money than in Tumblr's prominence.
"There are a lot of rich people in the world. There are very
few people who have the privilege of getting to invent things
that billions of people use," he said.