Yahoo board OKs $1.1 billion deal to buy Tumblr

Posted May 19, 2013, at 7:21 p.m.
Last modified May 20, 2013, at 6:31 a.m.

SAN JOSE, Calif. — Yahoo’s board of directors has reportedly approved a $1.1 billion purchase of the popular blogging site Tumblr, Yahoo chief executive Marissa Mayer’s boldest move to date to revitalize the struggling Internet giant.

Six-year-old Tumblr has little revenue but a growing audience of young Internet users, which could help Yahoo in what its own executives have described as a quest to improve the company’s “cool” factor.

The deal’s reported cost would make it Yahoo’s biggest purchase in a decade. And while the price raised some eyebrows, analysts said acquiring Tumblr could be a smart strategic move. Yahoo’s stock, which closed Friday at $26.52 a share, rose 1.5 percent in after-hours trading on Sunday.

There were no competing bids for the New York-based Tumblr, according to news reports Sunday. A Yahoo spokeswoman would not comment, but the board’s vote was reported first by the All Things D technology blog and later by the Wall Street Journal and The New York Times, which cited unnamed sources familiar with the deal.

Terms of the deal reportedly provide for Tumblr founder and chief executive David Karp to remain with the company for at least four years, while running Tumblr as a quasi-independent unit of Yahoo. That arrangement appears aimed at reassuring loyal Tumblr users that they won’t see dramatic changes right away, in the same way that Facebook has preserved an arm’s-length relationship with Instagram, the popular photo service it bought last year.

The $1.1 billion all-cash price is a premium for Tumblr, which was valued most recently at around $800 million, based on its latest round of venture capital funding last year. The company has raised $175 million from investors to date.

Tumbler, which provides a free blogging platform for its estimated 117 million users, only recently began showing ads and reportedly had just $13 million in revenue last year. Analysts say it has potential to show more ads, and it could be an attractive addition to Yahoo’s advertising platform, since many of its users fall in the coveted 18-to-29-year-old age group.

Mayer has been working to re-energize Yahoo since she was recruited from her job as a Google executive last year. While Yahoo is still one of the world’s most-visited Internet portals, it has been steadily losing advertising business to Google, Facebook and other sites in recent years.

Yahoo had also fallen behind its rivals by having little presence on smartphones and tablets, which are increasingly popular among Internet users, and failing to capitalize on the social media bandwagon. Tumblr has a small but growing mobile audience.

But some analysts pointed out that — along with personal essays, musings and photos — a significant subset of Tumblr’s audience uses the site to share pornography and other adult-oriented material that could make advertisers queasy.

Analysts also warn that Tumblr’s future as an advertising platform is not yet clear, so its potential contribution to Yahoo remains to be seen. Karp has long said that he was more interested in building Tumblr’s audience than in producing revenue.

Distributed by MCT Information Services

 

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