Yahoo CEO Marissa Mayer’s campaign to transform a faded Internet brand into one of the web’s coolest destinations just took an interesting turn. Yahoo (YHOO) is buying the New York Silicon Alley blogging network Tumblr for $1.1 billion.
It’s by far the biggest deal under Mayer’s tenure and potentially a great property as Yahoo takes on Google (GOOG) and Facebook (FB) in the $17.7 billion display ad market and emerging market for mobile advertising. A former Google executive, Mayer has impressed investors with her moves so far. The stock is up about 34% on the year and 70% since her arrival last year.
YHOO data by YCharts
The deal also opens the door to some interesting revenue opportunities if Yahoo and Tumblr CEO and founder David Karp (who’s staying on) can figure out a strategy to monetize the blog platform’s monster traffic without messing up what’s unique about the service, which hosts some 108 million blogs.
By bringing on Tumblr, Yahoo’s audience is expected to grow by 50 percent to more than a billion monthly visitors, according to the Yahoo press release. At Tumblr, Karp promised users at the fast-growing social network to stay true to its mission as a creative outlet for talent. “Marissa and her team share our dream to make the Internet the ultimate canvas,” Karp wrote in a post to Tumblr followers. “We also share a vision for Tumblr’s business that doesn’t compromise the community and product we love.”
Nice sentiment, but Tumblr will almost certainly become a more commercially driven site. Mayer’s has a board to report to and needs to show a return on that $1.1 billion.
Felix Salmon, who likes this deal, thinks Mayer may offer Tumbloggers the option to run ads on their sites and split the revenue with Yahoo. In addition, the Yahoo sales team with Tumblr now has a massive audience some advertisers will want to reach. They may be able to cross-sell on Tumblr and other Yahoo network sites.
Another big opportunity is mobile. On mobile, more than half of Tumblr’s 300 million monthly unique users are using the mobile app and do an average of 7 sessions per day, according to Yahoo. All manner of Internet companies (including Yahoo, Google and Facebook) are chasing the rapidly expanding mobile commerce market. To understand why, just take a look at the growth dynamics projected through 2016 in this chart from Statista:
On more skeptical note, Rocco Pendola at TheStreet.com called the deal “unimaginative” and wonders how Mayer will monetize the new traffic when the Internet company has done such a poor job of leveraging the eyeballs it already has.
The following Covestor portfolios own Yahoo as of May 20: