Updated from 9:29 A.M. to include analyst in the eighth paragraph..
NEW YORK (TheStreet) -- Yahoo! (YHOO) CEO Marissa Mayer is making an enormously bold bet, buying Tumblr for $1.1 billion, mostly in cash. Tumblr has what Yahoo! needs to turn its core business around. But considering the company only did $13 million in revenue last year, it better pay off, or this could be Mayer's first major flub.
When Yahoo! announced its Summly acquisition several weeks ago, Mayer's strategy for Yahoo! was really beginning to reveal itself. Mayer believes that content is king, and Tumblr is just that. There's also the mobile aspect of Tumblr, which Mayer has repeatedly said is something Yahoo! needs to focus on to compete in the future.
Buying Tumblr helps address the issue of personalized content to help drive display revenue growth, something Mayer has talked about before."The combination of more personalized content and increased product innovation will be key in getting us back to a path for display revenue growth," Mayer said during Yahoo!'s fourth-quarter earnings. The CEO also added that Yahoo! would have "some content costs, which you'll see as we make some of these developments." According to comScore, Tumblr had 117 million visitors in April, with more than 100 million blogs, and over 50 billion posts. Tumblr CEO David Karp has built a blogging powerhouse, but has only just started to monetize his user base. The New York-based Tumblr told Forbes it posted $13 million in revenue in 2012, and there have been reports from AllThingsD, which first broke the acquisition news, that the company could do as much as $100 million in sales this year. If $100 million or a number close to that is achieved for 2013, that's roughly revenue growth of eight times what the company did in 2012. That's incredible, and would be enough to definitely consider spending $1.1 billion in cash. The problem is that $100 million is still small potatoes to Yahoo!, which did $1.14 billion in revenue last quarter. The issue for Yahoo! over the past few years has never been about its user base (some 700 million monthly users to various properties), it's been about making money off those users. Tumblr addresses expanding the user base, but given its core demographic, it's tough to say when Yahoo! will see a return on its $1.1 billion investment.
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