(Corrects to “automattic” from “wordpress” in second paragraph, name to “Rizvi Traverse” in sixth paragraph, and spelling of name to Mullenweg from Mullen in seventh paragraph)
By Sarah McBride
SAN FRANCISCO, May 24 (Reuters) - Automattic, the company that operates blogging service WordPress.com, announced a $50 million investment from hedge fund and private-equity investor Tiger Global on Friday.
The investment comes on the heels of Yahoo’s $1.1 billion acquisition of blogging company Tumblr, showing the high prices fast-growing services that targeting Internet users can command. The valuation for Automattic was similar, Fortune reported. A spokeswoman for WordPress declined to comment.
WordPress powers the blogs at companies such as CNN.com and Techcrunch, a spokeswoman said.
The investment bought out shares of existing shareholders, including early employees, rather than directly funding the company, wrote WordPress founder Matt Mullenweg in a blog post.
“Allowing early investors to lock in some returns releases any short-term pressure there might be on the company for a liquidity event and allows us to focus fully on the long road ahead,” he wrote in his post.
The investment is part of a crop of financing where nontraditional investors make bets on venture-capital backed companies. They include private-equity firms such as Rizvi Traverse Management, which last year led a $200 million funding round in payments service Square, and mutual funds such as T. Rowe Price, which has invested in companies including micro blog service Twitter.
Many of these investors “come in with the ability to write checks larger than the entire size of most VC funds,” wrote Mullenweg.
More top blogs run Word Press than any other publishing platform, according to a 2012 study conducted by Kingdom, a website monitoring service. Blogs it cited in the study include technology sites such as Tech Crunch and Boingboing and Hollywood news site Deadline.
While many organizations use Tumblr, it is heavily associated with individuals updating friends and others on their activities and interests, social-media style.
And while Tumblr’s revenue is advertising based, the bulk of WordPress’s revenue comes from fees to users who upgrade beyond its basic free service. It also derives significant revenue from charging large media companies to host their entire blogging platforms, said Automattic Chief Financial Officer Stuart West in a telephone interview. He declined to disclose figures.
Like Tumblr, WordPress is growing fast, with 50 million users today compared with 4 million five years ago, the company said. Tumblr launched five years ago and today has more than 100 million blogs in its network.
The largest single audience group for WordPress is users aged 25-34, according to consultancy comScore. For Tumblr, the largest group is users aged 18-24.
Earlier this year, Tiger led a $444 million equity investment in online survey company SurveyMonkey as part of a financing round that also allowed early investors and employees to cash out. Tiger partner Lee Fixel handled his firm’s investment in both SurveyMonkey and Automattic.
Tiger extended its offer to WordPress in April, before Yahoo’s acquisition of Tumblr was announced, West said.
Automattic’s venture backers include Polaris Partners, True Ventures, and the New York Times Co. (Reporting by Sarah McBride; Editing by Marguerita Choy)