Yahoo Board Approves a $1.1B Pricetag For Tumblr

TechCrunch reports that Yahoo's string of acquisitions may soon include Tumblr: "The Wall Street Journal is now reporting via Twitter that the rumored $1.1 billion cash acquisition deal for social blogging site Tumblr has been approved by Yahoo’s board of directors. The Tumblr acquisition was rumored last week, with a price tag reportedly north of $1 billion, which appears to be accurate if the WSJ’s sources are correct." The article notes, too, that "Yahoo had only $1.2 billion cash on hand as of its most recent quarterly earnings, which makes an all-cash offer for Tumblr a lot more of a stretch than it would be for someone like Apple, or even Facebook, which acquired Instagram for $1 billion in a mix of both cash and stock."

Comments

Strange

[XPeter]

They could've bought YouPorn for a lot less.

Re:Strange

[popo]

Not strange at all. Marissa Mayer isn't capable of doing much besides making overpriced acquisitions and hires.

Here's (yet another) social blogging platform with no clear revenue model.

Re:Strange

[SimonTheSoundMan]

I see the strategy. This and a service like Summly mixed together. Intelligent shared content on a huge scale. That could actually be something pretty awesome. Really make Twitter totally obsolete.

Re:Strange

[gweihir]

Current stock prices are not a predictor for the future. Well understood by anybody that cared to find out.

Re:Strange

[gweihir]

Indeed. At Google that did not matter, as they have heaps of money to throw after one bad project and acquisition after another and still be very profitable. At Yahoo, this will just kill the company, even if it may take a while.

Re:Strange

[Jherek Carnelian]

+1

I remember laughing my ass off a while back when one of the CEOs in the long line of CEOs at HP said that the stock market is an objective measure of a company's performance. That was a little bit before the dotcom crash IIRC.

Re:Strange

[meta-monkey]

I am fascinated by your ideas, and would like to subscribe to your newsletter.

Re:Strange

[Colonel Korn]

Yahoo is also sitting in a nice pile of cash 4 bil i think.

RTFS. Yahoo has $1.2B on hand and are commiting 92% of that on this purchase.

Re:Strange

[gweihir]

Indeed. I think I read that also and it was one of the moments that reinforced my belief that most CEOs do not have a clue how their business works.

Re:Strange

[Stormwatch]

And #2 is... AOL, seriously?

Re:Strange

[David Gerard]

"We've received your test reports. Your drug intake is well below industry standards. Here's some techno CDs, remedy this immediately."

Re:Strange

[BuypolarBear]

Source: Yahoo! Finance

Nothing suspicious to see here folks.

Re:Strange

[Jafafa Hots]

The only problem with that scenario is that it was Yahoo that bought it.

Which means Tumblr will go the way of Flickr. It will be milked and ignored until it's about as dated as black and white TV.

Re:Strange

[gweihir]

As long as they have one primary cash-cow, they can do arbitrarily bad management of the rest. And they do. For MS it is Office and Windows, but these seem to be getting more and more shaky, hence the desperate attempt to get onto phones and tablets by giving the desktop OS the same GUI. Still, even with that MS can waste a lot of money. They have gotten more careful though, at least that is my impression. Apples is a different case, they were close to death and know it. They _are_ very careful. But Google is not. Look at all the projects they scrap. Look at all the acquisitions nobody has ever heard from again. They have ads, search, Gmail and maybe maps to fuel that statistics for the Ads and that is it. Everything else Google has does not produce revenue. Still, they are doing really well cash-flow wise. Not that anybody really smart wants to work for them today, but they get enough of the not quite so smart ones.

Re:Strange

[jbolden]

The cash cows for Microsoft are their server products SQL Server, Dynamics, Sharepoint, Lync...

Re:Strange

[rtb61]

I really hope you don't think management should take credit for a price rise following a price drop and a failed buyout and no perceived future, no, surely you wouldn't do that. Neither would you take credit for any revenue increases that were simply inflationary or even worse bought in. That would be really really be blonde dumb. Better POE ratios and improvements in the value of assets but please not "I'VE GOT PUPPIES, LOTS AND LOTS OF PUPPIES". You might impress the non-investor but those with a bit more nous are going to look on you as the fool. That puppies thing, nobody said much at the time because it was just so, so, ???!!! seriously that was a business plan, puppies.

Re:Strange

[jythie]

The know what makes their short term investors happy and their stock options valuable....

While we like to mock CEOs, at the end of the day they got to where they are by being good at what they do. The problem is what WE think they should be doing and what actually pays off is pretty out of sync. Right now the job market for CEOs rewards short term profits at the expense of long term viability. Investment in the future is generally punished. Granted the public and the tech community might point out that such behavior hurts the company, the people who actually influence the person's pay and future employment options do not, nor do they care. Long term stability and profits just are not considered priorities.

Re:Strange

[gtall]

I think what you are after is the opportunity cost. Chasing an acquisition means integrating that acquisition into your current environment which generally means a culture clash. The people from the acquisition are the leadership and the rank and file. The leadership, if they have any sense at all, will be looking for the exits as soon as the deal closes because the chances they will be replaced are high if only because the powerbases in the new company will want them gone. The rank and file will probably be anxious and they too will be looking for the exits since they didn't grow into the acquirers way of doing things and figure they too will be on the chopping block as soon as the acquiring company can see fit to do without them. The steady attrition will mean the institutional memory will go bye-bye. After that is only left the technology. But if the technology was so good, they wouldn't have wanted to be acquired in the first place, which points to another problem: the deal is probably a lemon because a vibrant, growing company should not be wanting to see itself sold...unless the insiders know something isn't working correctly.

Also, if it isn't a good fit, you will waste years figuring that out when you should have spent those years on a better investment....such as in-house research to serve your core markets, etc.

Re:Strange

[hairyfeet]

I think its pretty obvious why they want to sell, they lost 12 million bucks last year and there really is no way to monetize the users without them all just leaving. That is the whole problem with all this "social" aimed crap in a nutshell, any attempts to monetize them will result in a shittier experience and the users walking away.

But yeah opportunity cost is a good way of looking at it, if these companies buy one too many stupid companies when that smart company that might actually be a good fit comes along they may either be short of capital or the board will be seriously reluctant to spend the money in light of previous failures. I mean if a perfect fit for HP came along that cost say 4 billion how likely do you think the board will be to bite when they've had to write off over 10 billion from previous deals? And this one is insanely stupid, spending 92% of their cash on a single company that hasn't even turned a profit yet?

if I didn't know better I'd be wondering if this CEO is a plant designed to lower the value thus making it easier to buy Yahoo out, but sadly more likely just another incompetent rich CEO that will make a ton of money no matter how stupidly or badly they do their job. The rich get richer is one of the few constants in the universe it seems.

Re:Strange

[evilRhino]

While we like to mock CEOs, at the end of the day they got to where they are by being good at what they do...

This is a false premise. It is just as likely that they have gotten where they are by social acumen, and have no idea what they are doing.

Re:Strange

[TWX]

This is Yahoo, not Earthlink!

Making this...

[Anonymous Coward]

The first Yahoo owned content online I will have actually visited since 1998

Let's see

[Intrepid imaginaut]

From wiki: Tumblr made $13 million in revenue in 2012 and hopes to make $100 million in 2013. So far, Tumblr has taken $125 million in funding from its backers. Tumblr reportedly spent $25 million to fund operations last year.

So it's making a loss of $12 million a year and yahoo is willing to fork over $1.1 billion on the hope that it might actually make $100 million this year?

Interesting!

Re: Let's see

[alen]

With these numbers it's worth $10 billion

You have to value it in eye balls

Re: Let's see

[Intrepid imaginaut]

As soon as I can buy my dinner with a sack of eyeballs that's just what I'll do.

Re:Let's see

[gweihir]

No, stupid. The decision of a CEO desperate to find something that works. Betting on the wrong horse is a time-honored tradition with inexperienced CEOs. Some get lucky, but not this time.

Re:Let's see

[alexander_686]

So, to reorder your numbers a bit,

100m in projected revenue / 40m in cost of goods this year = 60m in profits. (40m is from wiki's original source, numbers are projected, so....)
1.1b market cap / 60m profit = Price/Earnings ratio of 18.
  P/E ratio for the S&P is 14.

It looks like it has high growth, that would push the numbers up. Huge risk / numbers are projections / I am doing the numbers on the fly without all of the accoutning number - would push the numbers down.

Re:Let's see

[meta-monkey]

Traditional stock valuation methods kind of assume your company isn't a fad that could implode in a heartbeat. There's nothing to think Tumblr has survivability better than say, MySpace. Yes, I can see paying a billion for something that generates 100 million a year...if there's a good reason to think that asset will last more than 10 years. Free-to-use websites that generate 100 million a year for more than a decade are unicorns.

Re:Let's see

[Colonel Korn]

So, to reorder your numbers a bit,

100m in projected revenue / 40m in cost of goods this year = 60m in profits. (40m is from wiki's original source, numbers are projected, so....)
1.1b market cap / 60m profit = Price/Earnings ratio of 18.

  P/E ratio for the S&P is 14.

It looks like it has high growth, that would push the numbers up. Huge risk / numbers are projections / I am doing the numbers on the fly without all of the accoutning number - would push the numbers down.

Ah yes, we should always base P/E ratios on the "hoped for" earnings over the next year, especially when they're about an order of magnitude higher than the real world numbers from right now.

Re:Let's see

[hairyfeet]

Bingo! Give that man a ceegar! The problem with spending any real money on these things is that the users have zero brand loyalty and can just disappear like a fart in the breeze, we have seen this time and time again, from MySpace to Flickr, you try overloading the place with ads to try to get your money back and the users bail and you are left with a ghosttown...how much did Yahoo pay for Flickr or Geocities?

The sad part is this CEO is not only doing something insanely stupid, they don't even seem to realize WHY Yahoo has had that sudden growth all of a sudden, as somebody in the trenches I can tell you why....MSFT backlash. Trying to force all their users into a "MSFT Ecosystem" by killing Live Messenger and Hotmail for Skype and Outlook ran a LOT of the users off and since they don't like the "everything is chat" style of Google, guess where they went?

Yahoo is betting the farm on people actually liking the brand when in reality they just hate the other guy THAT much, but the loyalty just isn't there which they are gonna find out the hard way when they try to get a ROI on this, not to mention as others have pointed out your pension funds and the like aren't gonna want to invest in a porn company and that pretty much is what Tumblr is used for, porn clips.

What a scam

[arcite]

Must be nice to run a multi-billion dollar corporation that makes barely any profit and spend money like a drunken sailor.

Re:What a scam

[fustakrakich]

Who cares why? It's a game of roulette.

Re:What a scam

[IANAAC]

Who cares why? It's a game of roulette.

The reason our economy is fucked, distilled in one sentence.

Re:What a scam

[hairyfeet]

They aren't MSFT? Seriously that is it, I can tell you that I have had to set up countless yahoo accounts for my customers in the last 6 months as the switch from Live Messenger and Hotmail to Skype and Outlook (which most of their users I talked to frankly thought was inferior) ran off a LOT of customers.

Now one would argue that if that was the case why didn't they go to Google but the answer is simple, the way Google treats everything like a chat turns off a lot of the users, and with MSFT shitting all over its customer base trying to be Apple that left only Yahoo. So the fact that Yahoo suddenly got a big bounce really doesn't surprise me, you had a LOT of people that were using Hotmail and Messenger that bailed when MSFT started to force the switch and really Yahoo was the only alternative that was in any way similar to what they had.

"Social" is a lose

[Animats]

Despite all the noise, almost nobody is making money in "social". Even Facebook isn't very profitable, despite its size. The business strategy in "social" seems to be to give the service away for a few years, build a following, then crank up the density of ads until the users get fed up. Worked for Myspace, right?

Facebook traffic peaked about a year ago. Twitter is now exploring the user's threshold of pain with "sponsored tweets". This is robocalling in another form.

Basic truth: ads with search results are useful to users and effective for advertisers, because they're presented when the user is actively looking for something relevant. Ads on "social" are merely annoying because the user is looking at what their friends are doing.

Re:"Social" is a lose

[Seumas]

I still don't understand how Tumblr is "social". The few times I've (unintentionally) landed on someone's pages on Tumblr, I see absolutely no interaction going on. I don't even fucking know if Tumblr has the capacity/features for interaction (it just always looks like streams of updates or photos with no comments or other input whatsoever). I thought Tumblr was a poor-man's blogging service without any features and am absolutely baffled to find out that it either makes a dime or is worth a billion dollars. I am not, however, baffled at the stupidity of people or committees.

Something stinks here

[randomErr]

A company that has $13 million in revenue in 2012 and hopes to only make $100 million in 2013 is purchased for 1.1 billion? This smells of a multi-level pump and dump scheme.

I will bet what will happen in the next 18 months is: Yahoo buy's out Tumblr. Tumblr's CEO sells all his stock Monday morning and get insanely rich. The new tYahoo company goes bankrupt by the end of the year. Microsoft or Bill Gates himself will swoop in and FINALLY by buy Yahoo making the current CEO insanely rich. If gates himself buys it sells Yahoo back to MS and adds to his insane fortune. Microsoft and integrates all of tYahoo's tech into MS and starts a second round of war against Google search and Google products.

Re:So what?

[gweihir]

Indeed. I have never, ever dealt with anybody to technologically incompetent as Yahoo. I had to remove a domain subscription from them as after talking to 14 different customer "service" reps, I still had not found anybody that understood the basics of the DNS system. Yes, I wanted to use my own servers, and while nobody else had a problem with that, Yahoo did not even understand the question.

Ya-who?

[tutufan]

Yes, but on the plus side, they now have a brand that people think of as still being in business...

This seems like complete insanity...

[fuzzyfuzzyfungus]

Hey, Yahoo, remember that other photo-sharing site you already fucking own?

Please, do, tell me what 1.1 billion dollars worth of tumblr brings to the table that a mild reskin(to put the pictures with captions in columns, rather than in 'galleries') of flickr could have ready to demo inside a week and roll out in short order?

Re:This seems like complete insanity...

[sehryan]

Tumblr isn't a photo sharing site, it is a micro blogging platform. Flickr has photos and I think video (upload). Tumblr has photos, video, audio, and finally text, which further breaks down in to posts, quotes, and links.

So please, tell me how a five day sprint to reskin Flickr is going to add all of those additional features.

Re:This seems like complete insanity...

[ColdWetDog]

Look, you guys don't get it, do you? You never get this sort of thing.

Of course Flikr and Tumblr will mix well. They both end in a contracted 'r'.

It's pretty clear why you all aren't in business.

Re:So what?

[meta-monkey]

You're not wrong, but I had to laugh at the idea of "ruining" GeoCities. That sort of implies that at one time GeoCities was not ruinous, and then became so.

Dangerous Games

[Whatchamacallit]

Tumblr is worth exactly squat if Yahoo screws with it too much. A social platform is only as good as it's users. If the users abandon the platform in protest to Yahoo's new direction it will spell the doom of Yahoo! Instagram's transition was initially painful and they lost a good deal of users. Yahoo has to be very careful, best to keep things the same for a long time and then slowly introduce improvements that will excite and encourage the customer base and not annoy them. A major misstep and it can all come crashing down very quickly... Social media is a high stakes game. To pay that much for Tumblr is an extreme gamble.

Do none of you fight for the users?

[Scorch_Mechanic]

No, I'm not talking about the irritating tween idiots. I'm talking about the artists. For every groupthink mob of self-entitled screaming idiots shouting their misinformed opinions at the top of their tiny little lungs, there's an artist taking advantage of the dead simple microblogging platform.

Tumblr is the home of the Drawblog (contains art), the Ask (ask a character questions, receive drawn responses) blog, and the art compilation blog. To my knowledge, none of these things substantially exist outside of tumblr. Sure, I could follow an "art appreciation" group on facebook, but because facebook doesn't deliver stuff to me in anything resembling chronological order it's largely useless to me.

I am worried. Legitimately worried that Yahoo is gonna screw up Tumblr.

Re:Do none of you fight for the users?

[dingen]

So they'll just move to Wordpress or Blogger or use some other random blogging platform. What's the problem?

Re:Don't write code!

[DuckDodgers]

No, Yahoo is trying to buy sexy brands. All the technology in the world won't get you attention if you don't have a recognizable brand. Bing works pretty well, maybe as well as Google Search, but since so many people hate Microsoft they just can't dethrone Google for search. Facebook could have built their own Instagram in a month, Mark Zuckerberg didn't buy it for the technology, he wanted to own the Instagram name.

Yahoo's biggest problem is that everyone considers it old news. Mayer is trying to fix that by getting some recognizable brands into Yahoo.

Re: So what?

[Anonymous Coward]

so basically geocities was what tumblr is today.