Yahoo-Tumblr acquisition – How did the math work out?
I think there are multiple methods at work here:
a) Traffic Integration – What is Tumblr’s Traffic worth to Yahoo? What can Yahoo sell to these customers or sell these customers for? Over the next 5 years how much revenue would this traffic add to Yahoo’s bottom line? Read the wired article on what Yahoo could possibly do with some of Tumblr properties. Also read the Forbes comment on Google – Youtube transaction and what it means to Yahoo-Tumblr. Google paid US$ 1.6 billion to acquire YouTube. Today YouTube contributes 4 billion a year in annual revenues to Google’s bottom line.
b) Content Valuation – What would be the replacement cost of Tumblr’s content properties and page views? If anyone were to start a venture exactly like Tumblr how much time, cash and resources would it take to replicate content and traffic? Is there an overlap in content between what Yahoo does and what Tumblr offers. If you were to take the best of Flicker and Tumblr could you beat the Facebook/Instagram combo.
c) Market Value – Are there any similar relevant transactions that indicate what other interested buyers are willing to pay for similar options? How much did Facebook pay for Instagram? Who else is sitting on the table? Where was the last valuation at – at 800 million according to the Wall Street Journal article covering the transaction.
To this add how much Tumblr’s decision makers are willing to sell at, how much cash Yahoo can spare, what do the numbers look from the inside and what is the likely impact both in terms of numbers as well as in terms of buzz that this transaction will create? Will this transaction make Yahoo a credible player again? Does Yahoo have the execution capability to make this work?
I think the primary question Yahoo and Yahoo’s board answered would be what is Tumblr worth inside of Yahoo than outside or worse what is Tumblr worth inside the competition? That debate, I would guess was driven by Tumblr Traffic and Yahoo’s ability to convert it into dollars. I don’t think Tumblr’s existing revenues (13 million annually) made a difference in the model or even came up for discussion other than validation or benchmarks for the traffic versus dollars debate.