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                      Yahoo Buying Tumblr for $1.1 Billion

   by Reuters

   Yahoo Inc said it is buying blogging service Tumblr for $1.1 billion
   cash, giving the struggling Internet pioneer a much-needed platform in
   social media to reach a younger generation of users.
   The deal, announced Monday, is a bold bet by Yahoo Chief Executive
   Marissa Mayer to revitalize the company by co-opting a Web property
   with strong visitor traffic, but little revenue.
   Yahoo made clear it was sensitive to concerns that it might damage
   Tumblr by making it less irreverent or more corporate.
   "Per the agreement and our promise not to screw it up, Tumblr will be
   independently operated as a separate business," Yahoo said in a
   statement.
   The acquisition, which will use up about a fifth of Yahoo's $5.4
   billion in cash and marketable securities, is the largest by far since
   Mayer took the reins in July with the goal of reversing a long decline
   in Yahoo's business and Web traffic.
   Analysts said Yahoo appeared to be overpaying for a business that might
   not contribute to revenue for years, but said that Yahoo had to do
   something to plug a hole in its social media efforts.
   RBC Capital Markets analyst Mark Mahaney called it a
   "long-shot/long-term investment" but one that fits into Mayer's
   turnaround strategy.
   "[Yahoo's] fundamentals have been subpar for numerous years, in part
   because of the company's missing presence in Social and Mobile. Tumblr
   may help [Yahoo] develop that presence," Mahaney said in a note.
   Tumblr is one of the Web's most popular hubs of so-called
   user-generated content, drawing young people who use the platform to
   post pictures and text. Tumblr has more than 100 million blogs in its
   network, ranging from "White Men Wearing Google Glass" to
   housing-focused "The Worst Room."
   Though Yahoo remains one of the Web's most popular destinations, it has
   seen its revenue shrink in recent years as consumers and advertisers
   favor rivals such as Google and Facebook. The deal is expected to
   increase Yahoo's audience by 50 percent.
   Rich premium
   While Tumblr is certainly popular - it has tens of millions of monthly
   unique visitors - analysts questioned what kind of contribution it will
   make to Yahoo revenue, since advertising on the site is in its nascent
   stages.
   Media reports have pegged Tumblr's 2012 revenue at $13 million. The
   privately held company, based in Manhattan, does not disclose its
   financial results.
   Yahoo expects that Tumblr will help boost revenue by 2014, Ken Goldman,
   Yahoo's chief financial officer, said on a call with analysts. He did
   not provide specific numbers.
   "Even if revenue was $100 million, it means Yahoo paid 10 times
   revenue," said BGC Financial analyst Colin Gillis. "Ten times is what
   you pay to date the belle of the ball. It's on the outer bands of M&A."
   Yahoo could quickly boost Tumblr's revenue by combining the website
   with its own sales force, said Pivotal Research Group analyst Brian
   Wieser. Loading Tumblr up with banner ads risks alienating its users,
   however, and probably wouldn't provide a significant lift to Yahoo's
   overall revenue, he said.
   "It's not clear that this deal will be favorable from a
   return-on-capital perspective," Wieser said. "One billion [dollars] for
   one company is a big bet."
   Gillis and Wieser were contacted on Sunday after the deal was reported
   by the online publication All Things D.
   Mayer, on the conference call, described the Tumblr deal as an
   exception and said Yahoo was not necessarily planning lots of similarly
   sized deals.
   Yahoo is one of several companies that have coughed up considerable
   money for buzz-worthy start-ups that hold promise. Facebook bought the
   popular social media photo site Instagram for $1 billion last year. In
   2006, Google paid $1.6 billion for YouTube.
   Shares of Yahoo rose as much as 2 percent in early trading Monday, but
   later fell back. They were up 18 cents to $26.70 in late-morning
   dealings. Through Friday's close, the shares had risen 70 percent since
   Mayer became CEO.
   Image issues
   One question Yahoo may have to address is Tumblr's reputation as a home
   for pornographic blogs. At one point in 2009, about 80 percent of
   Tumblr's top sites had something to do with adult content. Today that
   number is closer to 5 percent, according to Quantcast data, but the
   image lingers.
   Mayer said on the call that Yahoo's targeting tools would allow
   advertisers to zero in on specific demographics and content.
   One area where Yahoo plans to ramp up advertising: Tumblr's dashboard,
   the main landing point, akin to a newsfeed.
   Dealing with that and other issues may fall to David Karp, 26, who
   founded Tumblr in 2007 and will remain CEO.
   Karp, a self-taught programmer who left high school in favor of home
   schooling, did not take part in Mayer's conference call. Media reports
   have suggested his take in the billion-dollar sale would top $200
   million.
   In a 2012 interview with The Guardian, Karp seemed to be less
   interested in money than in Tumblr's prominence.
   "There are a lot of rich people in the world. There are very few people
   who have the privilege of getting to invent things that billions of
   people use," he said.
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References

   1. http://www.voanews.com/content/yahoo-buying-tumblr-for-more-than-one-billion-dollars/1664655.html