Internet pioneer Yahoo! Inc. announced today (Monday) it was buying Tumblr for $1.1-billion in an acquisition that some analysts were quick to criticize as holding little value for Yahoo shareholders.
Tumblr founder David Karp, a 26-year-old high-school dropout, will make about $250-million from the deal, according to the New York Times. A statement from Yahoo! said he would remain as CEO of the social media site, which would continue to operate as a separate business.
As if anticipating a skeptical reaction to the move, Yahoo! declared in the statement: “Our promise not to screw it up.”
Yahoo! CEO Marissa Mayer acknowledged that the two companies are totally different animals.
“On many levels, Tumblr and Yahoo! couldn’t be more different,” she said.
“But, at the same time, they couldn’t be more complementary. Yahoo is the Internet’s original media network. Tumblr is the Internet’s fastest-growing media frenzy. Both companies are homes for brands - established and emerging. And, fundamentally, Tumblr and Yahoo! are both all about users, design, and finding surprise and inspiration amidst the everyday.”
Mayer, who moved to Yahoo! from Google less than a year ago, gushed that Karp “is one of the nicest, most empathetic people I’ve ever met”.
“He’s also one of the most perceptive, capable entrepreneurs I’ve ever worked with. David’s respect for Tumblr’s community of creators is awesome.”
Karp was somewhat more circumspect. “Our team isn’t changing,” he told site users. “Our roadmap isn’t changing. And our mission – to empower creators to make their best work and get it in front of the audience they deserve – certainly isn’t changing. But we’re elated to have the support of Yahoo! and their team who share our dream to make the Internet the ultimate creative canvas. Tumblr gets better faster with more resources to draw from.”
Tumblr claims to have more than 300 million monthly unique visitors, 120,000 signups every day, and 900 posts a second, making it one of the fastest-growing media networks in the world.
Yahoo! said it was gaining “a significant new community of users”.
“The combination of Tumblr and Yahoo! is expected to grow Yahoo!’s audience by 50 percent to more than a billion monthly visitors, and to grow traffic by approximately 20 percent,” it said. “The deal offers unique opportunities for both companies.”
But the New York Times, among others, pointed out some of the flaws in Tumblr’s business trajectory. It reported that Tumblr had had only “mixed success” in trying to create new ad efforts like interactive campaigns, rather than using standard clickable ads. It said the company had set a revenue goal of $100 million for this year, but reported only $13 million for the first quarter. It reported $13 million for 2012.
The newspaper quoted analyst Colin Gillis of BGC Partners as saying, “Either this management team is going to turn Yahoo around or be the ones who squandered its asset base . . . This is not an inexpensive acquisition, but they’re willing to pay to get back some of what they’ve lost. They want to be hip.”
Peter Cohan, a contributor to Forbes.com, said the acquisition failed the four key tests: Tumblr’s industry was not attractive, the combined companies were worse off, Yahoo! was paying too much, and it would struggle to integrate Tumblr.
“When Yahoo!’s board hired first-time CEO Mayer, it probably thought she would go through a learning curve. But the $1.1 billion Tumblr deal is Yahoo! shareholders’ most expensive tuition payment yet,” Cohan said.
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