Yahoo! Inc. (YHOO) Board To Meet About $1.1 Billion Cash Offer For Tumblr

Posted May 19, 2013

Yahoo! Inc. (NASDAQ:YHOO) is going to meet today to discuss the possibility of acquiring blogging service Tumblr for $1.1 billion, according to AllThingsD.  Tumblr currently hosts 108.2 million blogs and 50.8 billion posts.  Many of these blog posts contain inappropriate content so many Internet analysts are questioning whether this acquisition makes sense for a media company that has a sterling reputation.  The deal is not expected to be entirely in cash because Yahoo!’s stock price has been on the rise lately, largely due to the hiring of Marissa Mayer as CEO.

Why Tumblr?
Yahoo! CFO Ken Goldman spoke at the JPMorgan Global Technology conference last week and emphasized the company’s need for attracted a younger audience of 18-24 year olds.  Goldman said that the company has an aging demographic.  This is where Tumblr could come in.  Tumblr generates around 12 billion pageviews per month and around 48% of their traffic comes from users that are 24 and under, according to Quantcast.

On Monday, Yahoo! has invited several news agencies for a product unraveling.  While the product unraveling could be related to Tumblr, it could also be something completely different also.  Marissa Mayer is scheduled to speak at the event.  Yahoo! has also been rumored to be in talks with as a potential acquisition.  If Yahoo! spends $1.1 billion on Tumblr in cash, that would amount to around one-third of their available cash and short-term investments.

The $1.1 billion figure is around a 37% premium on the company’s valuation based on the last round of funding.  Tumblr was valued at $800 million as of September 2011 so the rate of return may not be appealing enough for late-stage investors.

Acquisition Binge
Under Marissa Mayer, Yahoo! has been very aggressive in acquiring companies.  Within the last month alone, Yahoo! acquired Loki Studios, MileWise, GoPollGo, and Astrid.  In late March, Yahoo! acquired Summly for $30 million and another startup called Jybe.  Throughout April, Yahoo! attempted to buy out a majority control of video website, but the French government blocked the deal from happening.

What is Tumblr Anyway?
Tumblr is a microblogging and social networking website that allows users to post multimedia and other content seamlessly.  Users can follow other Tumblr users and make their own blogs private.  Their blogs are accessed from a “dashboard” interface (screenshot below).  Tumblr’s headquarters are in Midtown Manhattan, New York City.  Tumblr was founded by David Karp in 2006 during a two-week gap in contracts that Karp’s software consulting company had.  His software company was called Davidville and it was housed at the Frederator Studios incubator.

Karp was interested in short-form blogs for a while and he was waiting for one of the established blogging platforms to launch their own tumblelogging platform.  Since Blogger and WordPress did not have a simple short-form blog interface, Karp partnered with developer Marco Arment to build Tumblr.  Tumblr launched in February 2007 and they hit around 75,000 users within two weeks.  In September 2010, Arment left Tumblr to launch Instapaper, which was acquired by Betaworks last month.

Many large brands have launched a presence on Tumblr ever since then.  For example, Adidas and Barack Obama both launched an official Tumblr blog.  Celebrities that have created their own Tumblr blogs include Zooey Deschanel, Lady Gaga, John Mayer, and Pete Wentz.

One of the ways that Tumblr users drive traffic to each other’s blogs is by “reblogging.”  This means that if I publish a funny picture on my blog and you “reblog” me, the same content will show up on your blog with attribution to my blog.  This is one of Tumblr’s most popular features.

Bidding War?
There are rumors that Facebook may compete with Yahoo! for an acquisition of Tumblr.  Around a year ago, Facebook swooped in and outbid Twitter for the acquisition of Instagram.  Twitter was reportedly offering around $500 million for Instagram, but Zuckerberg and friends came in and offered them $1 billion.  Zuckerberg closed the deal over a weekend shortly before taking his company public.  Times are different for Facebook now though.  If Facebook acquired Tumblr, then they would likely face tough questions from investors considering that Facebook’s stock price has not recovered since the opening price of the IPO.

There is also speculation that Tumblr’s banker Frank Quattrone leaked word that Facebook has an interest in the company hoping that it will drive up Yahoo!’s price for the company.  However, BusinessInsider reports that an “auction” is not going to be happening.  Tumblr could threaten to walk away from the $1.1 billion deal with the hopes of forcing a higher bid.

Will Yahoo! buyout Tumblr?  Stay tuned to Pulse 2.0 as we find out what happens on Monday.