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Was Tumblr worth $1.1bn for Yahoo!?

Yahoo!’s acquisition of blogging service Tumblr has been all over the news in the past few days, as the company looks to make its first big-ticket acquisition of 2013. Remarkably, the agreed price of the acquisition stands at $1.1bn, a substantial amount considering that Tumblr accrued just $13m in revenues last year.

So, the question begs to be asked, why has Yahoo! paid such a premium in order to seize control of the fiver-year-old company? The answer lies with its online presence, specifically within the social media space.

According to a Yahoo! press release, Tumblr enjoys more than 200 million monthly unique visitors and 120,000 signups per day, sees 900 posts per second and 24 billion minutes spent on the site each month. Furthermore, the company also claims that over half of Tumblr’s users access the site through its mobile app, on an average of seven occasions per day. These figures are mightily impressive, and serve to highlight Tumblr’s growing social media presence, as well as its ability to tap into the ever-growing usage of smartphones amongst consumers.

According to Yahoo!, the acquisition is set to grow Yahoo!’s audience by 50 percent to more than a billion monthly visitors, and to grow traffic by approximately 20 percent. For Yahoo!, internet traffic is especially important, as it gains the vast majority of its revenues through internet advertising, and such growth could serve to bolster future revenue streams. In fact, Yahoo! claims that the two companies will also work together to create advertising opportunities that are seamless and enhance the user experience.

However, Tumblr has, so far, resisted extensive advertising on its website, which is reflected in its relatively low past year revenue figure. Additionally, with the two companies reporting that Tumblr will continue to act as an independent business, this could be an area that Yahoo! struggles to monetize. Other social network sites, such as Facebook, have faced difficulty in attempting to monetize the mobile platform, a key area of growth.

Furthermore, Yahoo! will have to be careful if it is to increase advertising on Tumblr itself, as encroaching adverts could dissuade users from the service which champions individuality and creativity.

If Yahoo! is able to strike a fine balance with its advertising endeavors, and successfully integrate Tumblr’s services into its own core activities, the acquisition could have a profound positive impact. Whether the price tag will become fully justified or not, only time will tell.

Find this interesting. You may also like our company report on Yahoo! 

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