Yahoo! to acquire Tumblr for $1.1 billion

Yahoo! unveiled its biggest deal yet under chief Marissa Mayer on Monday, snagging blogging platform Tumblr for $1.1 billion in a move to get younger users into the orbit of the struggling Internet pioneer.

The two firms confirmed weekend reports of the tie-up, a deal which keeps the fast-growing Tumblr largely independent while integrating technology and advertising opportunities.

"Tumblr is a game changer," Mayer said in a conference call discussing the acquisition.

"Tumblr is one of the fastest growing media networks in the world," and "brings a significant new community of users to Yahoo!" she added.

"This will grow Yahoo! users by 50 percent."

The companies said the deal is worth $1.1 billion, "substantially all of which is payable in cash." Yahoo! chief financial officer Ken Goldman said it includes "a small amount of stock" for Tumblr founder and CEO David Karp.

Mayer said Tumblr would operate independently but that the groups would "work together to create advertising opportunities that are seamless and enhance user experience."

"We promise not to screw it up," Mayer said in a blog post on Tumblr, as Yahoo! moved its official company blog to the new platform.

"The product roadmap, their team, their wit and irreverence will all remain the same as will their mission to empower creators to make their best work and get it in front of the audience they deserve."

Karp, in his own blog post, said he was "elated" about the tie-up and sought to allay staff concerns about any changes.

"We're not turning purple," he wrote. "Our headquarters isn't moving. Our team isn't changing. Our roadmap isn't changing... So what's new? Simply, Tumblr gets better faster. The work ahead of us remains the same -- and we still have a long way to go! -- but with more resources to draw from."

The deal, approved by the boards of both firms, is expected to close in the second half of the year, the companies said.

Yahoo! has been looking at a range of possible acquisitions since Mayer took the helm last year and vowed to revive the company, which has faded in the face of competition from Google.

Tumblr could be key to Yahoo!'s strategy because of its popularity with younger Internet users. A survey this year conducted by the online data group Survata found Tumblr more popular than Facebook among those aged 13 to 25.

While Tumblr generates very little cash, bringing it in the Yahoo! family could offer the potential for new advertising and other revenue sources.

"We hope this significantly contributes to our growth story," Mayer said, adding that the two firms can create synergies because of their different demographics.

She noted that Yahoo! can integrate some Tumblr "streams" in its news and mobile feeds and can help the blogging platform develop better ads for its users.

"Tumblr is growing, and we think it can enhance the engagement on our media properties," she said.

Analyst reaction was mixed.

Roger Kay at Endpoint Technologies said the deal "brings a social element that Yahoo! is missing and a set of new users."

But Kay added that "paying $1.1 billion for a company with $13 million in revenue seems a little nuts to me... Those numbers aren't even earnings, which are surely negative. So, even if Tumblr survives intact, Yahoo is unlikely to get its $1.1 billion back over any interval that falls within a human lifetime."

Justin Post at Bank of America/Merrill Lynch said Tumblr "could increase engagement with a younger audience" for Yahoo!.

"Yahoo!'s plan to integrate Tumblr content into Yahoo!'s properties will be an important aspect of the deal," Post said.

"Tumblr should also provide Yahoo more targeted user data as users indicate what content or whom they follow, which could increase the value of Yahoo! network."

Victor Anthony at Topeka Capital Markets called the deal "positive for Yahoo!, giving the company access to one of fastest growing social media assets, as well as access to the teen demographic."

Rob Enderle, analyst and consultant with Enderle Group, was skeptical.

"The concept is good, the service goes after a young demographic Yahoo! is missing," he said.

"But I have no evidence that Meyer knows how to do an acquisition like this... the chances this will end badly are very high."

Founded in 2007 and headquartered in New York, Tumblr says it has more than 108 million blogs, 50 billion postings in 12 languages and 175 employees. The website ranking site Alexa lists Tumblr as number 32 in terms of global popularity.