Yahoo! (YHOO) Deal to Buy Tumblr Approved? Deal Looks Too Rich

Investing

Published: May 19, 2013 1:21 pm

Last Updated: May 20, 2013 5:50 am

Just as there were rumors that Yahoo! Inc. (NASDAQ: YHOO) would buy social media site Tumblr, there are not rumors that the deal is finished. It is not clear what a $1.1 billion cash deal would get Yahoo!.

Tumblr revenue last year was only $15 million, according to Forbes. The company hoped to increase that to $100 million this year. That means Yahoo! would be paying 11 times sales–if Tumblr reaches its ambitious revenue goals.

According to The Wall Street Journal:

Yahoo Inc.’s board has approved a deal to acquire blogging startup Tumblr, people familiar with the matter said Sunday.

Yahoo has agreed to pay $1.1 billion in cash to acquire Tumblr, one of the people said.

Tumblr would continue to operate as an independent business, the people said.

A deal could be announced as soon as Monday, one of the people said.

Spokesmen for Yahoo and Tumblr didn’t immediately respond to requests for comment.

By acquiring Tumblr, Yahoo would instantly gain a social-media website that has become a hub of communication and blogging for millions of people. Yahoo could help Tumblr generate more revenue from advertisements.

If Yahoo! cannot significantly lift Tumblr sales, the deal will be a bust. It is worth keeping in mind that Yahoo! is struggling to increase its own revenue

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