Marissa Mayer, the new chief executive of Yahoo Inc., has made her first big bet to jump-start growth at the stalled web portal company with the purchase of New York start-up Tumblr, according to two people familiar with the transaction.
One of these people put the price of the acquisition at “more than $1-billion (U.S.)”, while other reports indicated that Yahoo had agreed to pay $1.1-billion in cash.
Tumblr, launched in 2007, has married short-form blogging with social media sharing to create a service that has been a hit with a mainly young online crowd. However, its growth rate has eased this year and the company has been slow to develop an effective form of advertising to match its lively content, according to Internet analysts.
Ms Mayer, an early employee of Google Inc. who took over the reins at Yahoo last July, has won over Wall Street with her attempts to galvanize the company’s workers. However, she has not yet been able to rekindle growth or stem Yahoo’s relative decline on the Web with the rise of Facebook Inc. and Google.
A purchase price of more than $1-billion would represent a big payday for David Karp, 26, Tumblr founder and chief executive who took up coding before he reached his teens.
But it also suggests that the company has not lived up to some of the big hopes of its early investors. At its last round of fundraising, in September 2011, it was valued at $800-million.
Though higher, the price Yahoo is said to have agreed does not represent the kind of return that venture capital investors look for from a company that is embarking on a significant phase of growth, particularly after an acquisition premium is added.
Tumblr is among the 20 most visited websites in the U.S. and saw soild user growth last year, though its expansion has flattened in 2013, according to Web measurement company Alexa.
Its young audience is attractive to Yahoo, which is trying to find ways to add to its traditional but slow-growing areas like email and search, said Zachary Reiss-Davis, an analyst at tech research firm Forrester. He warned that making money from the service without alienating its users was likely to be difficult. “It’s a hard balancing act. Is not a profitable service at the moment, they clearly have been focusing on [user] growth,” he said.
Tumblr began to add advertising last year. Yahoo has struggled in the past with acquisitions of Web services that were meant to inject growth into its business.
A series of deals in the middle of the last decade foundered after it sold social tagging service Delicious and closed Upcoming, a social calendar service.
Another acquisition, photo site Flickr, has retained its enthusiastic base of users, though it hasn’t galvanized Yahoo’s broader business. By comparison, Facebook’s purchase last year of Instagram has been followed by a surge of growth at the mobile photo sharing site.