Counterparties: Golden Karp
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Why might Yahoo want to buy Tumblr, as AllThingsD reported last night and Adweek confirmed this morning? Henry Blodget has a couple of ideas. For one thing, he says that “Yahoo wants to become hip and cool again, and Tumblr is hip and cool.” Tumblr also has a large following in the 18-29 demographic that Yahoo would like to capture (CFO Ken Goldman told a group of investors earlier this week that “One of our challenges is we have had an aging demographic.”) In that way, the move is similar to last year’s Facebook/Instagram deal, which Ryan McCarthy described as “a $1 billion way to make your parents’ status updates more interesting.”
Blodget also says that Yahoo is looking to become a content distributor, rather than a content producer: hosting a vast number of user-generated selfies, GIFs, and pornography is easier to scale than paying journalists, as Tumblr itself realized last month when it canned its in-house Storyboard journalism team. To Joshua Brustein, the purchase of the 108 million or so Tumblr blogs could be Yahoo’s “path back to cultural relevance”; it also may build on Mayer’s plan to move Yahoo toward stream-based advertising.
Because kids today don’t think Tumblr sucks (Techcrunch reports that “21% of its audience is under 18, 30% is 18 to 24, and 22% is 25 to 34”), other Silicon Valley companies with aging user demographics, like Facebook and Microsoft, are reported to be interested in bidding. However, Jeff Bercovici reports that the Yahoo talks are “likely to result in an offer as soon as Yahoo CEO Marissa Mayer can get her board’s approval”, and that it’s unlikely anyone else will be given an opportunity to bid.
What will Yahoo do for Tumblr? The site has a young and idealistic founder in 26-year-old David Karp, who has previously expressed resistance to being “absorbed into a behemoth of another company and raided for talent and traffic.” Unfortunately for Karp, Yahoo’s track record in that respect is abysmal. Sam Biddle has a good roundup of the Yahoo acquisition graveyard, including GeoCities ($3.6 billion in 1999), Flickr, and Delicious.
Back in 2011, Tumblr raised a $85 million at an $800 million valuation. Yahoo’s $1 billion offer isn’t a big premium over that, but Nicholas Carlson writes that Tumblr’s late-stage investors may have some deal sweeteners, ensuring they get a decent return. Karp may also see an upside to selling to Yahoo: Carlson writes that Mayer is likely to let Tumblr continue being relatively ad-free for the near future. — Shane Ferro and Ryan McCarthy
On to today’s links:
Morgan Stanley analyst reminds the world he only has a job because investors are dumb – Sam Ro
No, 2013 is not 1999 – Josh Brown
Bill Ackman is investing in a $90 million New York penthouse – WSJ
Legally, Goldman can’t deny it misled an investor — even though a court just threw out claims that it did (Got that?) – Jonathan Weil
“Company that helped Goldman build terrible CDO loses lawsuit over the result” – Matt Levine
And, of course, there are many more links at Counterparties.