Marissa Meyer headed Yahoo! will purchase Tumblr in an all-cash transaction for $1.1 billion. Tumblr would continue to operate largely independently. While we believe such a valuation is high, we believe the combination of Tumblr’s growing usage and Yahoo!’s ad technology present an opportunity to improve user monetization over time.
Tumblr should contribute meaningfully to user engagement for Yahoo!; the site had over 116M desktop unique visitors in April (+85% Y/Y, comScore). Tumblr should also bolster Yahoo!’s position in mobile, as its 14.5 million mobile unique visitors in the US (+227% Y/Y, comScore) give Yahoo! a large and rapidly growing mobile audience.
Integration into Yahoo!’s advertising and technology platforms can drive much deeper user monetization for Tumblr. We also see some cost synergies for the business by hosting Tumblr’s data on Yahoo!’s servers.
The reported acquisition carries execution risk in terms of Yahoo!’s ability to monetize Tumblr in a way that justifies this valuation. In addition, we believe Yahoo! needs to be careful about the manner in which it monetizes Tumblr, as a significant ad load and the perception of a large corporate owner could potentially alienate Tumblr’s core user base.
Tumblr currently has 184mn users and generated $13mn in revs last year and has plans to generate $100mn this year (per press reports and Wikipedia). Assuming that Tumblr could be on a path toward generating $2 per user per year (Facebook at $5/user but FB has over 6 hours/user/month vs. Tumblr at 40 minutes/user/ month in the US per comscore), we estimate that Tumblr could eventually generate over $400mn in annual revs.
Amidst, Yahoo! witnessing challenging Display advertising trends and risks a further loss of search share with it losing the competitive engineering edge it once had, it will be difficult for Yahoo! to make sense of Tumblr acquisition monetarily.