Must-know: Why Yahoo has been on an acquisition spree

Market Realist

Business overview: An investor's guide to Yahoo (Part 3 of 6)

(Continued from Part 2)

Marissa Mayer

In her 18-month tenure as Yahoo’s CEO, Marissa Mayer has acquired a number of companies mainly aimed at expansion into content, mobile, and search. The biggest acquisition so far has been Internet blogging service Tumblr for $1.1 billion in cash. Mayer’s challenge was to create a strategy that would leverage Yahoo!’s assets, competitive strengths, and available resources to transition the company from financial stability to a growth business.

A CB Insights report stated that of the 37 acquisitions and acqui-hires, 34 have come since the start of 2013, and 13 have come in the last four months. Of the 23 that received financing, Yahoo-acquired startups raised $253 million in aggregate disclosed funding across 51 deals prior to being acquired by Yahoo.

“We’re looking for smaller-scale acquisitions that align well overall with our businesses,” Mayer said in a shareholder conference call back in 2012. The first acquisition in October 2012 was Stamped, a mobile app that lets users share things or places they recommend with friends. The other acquisitions include chat broadcasting app OnTheAir, social news startup Snip.it, social recommendation site Jybe, news aggregation app Summly, task management app Astrid, gaming infrastructure startup Payscale, and location discovery app Alike. Yahoo acquired Admovate, a mobile advertising startup, and the social media–focused Ztilic and Rockmelt. In 4Q 2013, Yahoo acquired Aviate, which makes a tool to help smartphone users automatically organize their apps. Other acquisitions in 4Q were PeerCDN (Instant IO), Evntlive, Ptch, SkyPhrase, LookFlow, Bread Labs, and Hitpost to strengthen the company’s products, content offerings, core technology, and talent. The company recently entered into an agreement to acquire Incredible Labs, the developer of personal assistant app Donna. Yahoo has also acquired mobile marketing company Sparq, virtual gaming company Cloud Party, and enterprise app developer Tomfoolery. Most of the acquisitions were integrated with Yahoo.

Yahoo has yet to monetize Tumblr

The $1.1 billion price tag for Tumblr seemed to be a significant premium on its $800 million valuation in a capital raising from private investors. Tumblr’s 2012 revenue was just $13 million, and it was expected to book $100 million in 2013, according to a report in Forbes magazine. Tumblr operates independently, as Mayer promised “not to screw it up,” and founder David Karp remains the chief executive officer.

Founded in 2007 with 75,000 users, Tumblr hosts over 169.7 million blogs and more than 75.5 billion posts according to the website homepage. In the press release that announced the deal in May last year, Yahoo said Tumblr has 300 million monthly unique visitors. The blogging site has around 30 million to 50 million active users, and half of Tumblr’s visitor base are under the age of 25. Mayer said on its earnings call that the time spent on Tumblr has grown almost 50% year-over-year and the number of mobile posts on Tumblr has grown more than 200% over the same period. Growth in total posts is up more than 40% year-over-year. However, some news reports have speculated that user traffic to the site is slowing.

Tumblr has yet to generate robust revenue, and it’s slowly ramping up its advertising efforts by launching Sponsored Trending Blog ads in December last year. Under this initiative, advertisers’ Tumblr blogs will be featured when a user checks out the “Explore” tab in the Tumblr app for iOS and Android. This is an addition to other native ad products in Tumblr’s advertising offering, namely Sponsored Spotlight, Sponsored Radar, Sponsored Mobile Posts, and Sponsored Web Posts. Advertisers can target ads based on users’ gender and geolocation and are expected to only pay when the ads see response in the form of reblogs, follows, and likes. Search will also be a potential monetization opportunity for Tumblr, as Yahoo has integrated web search into the Tumblr search bar. Mayer had highlighted back in May 2013 that Yahoo intends to introduce its new streaming ads product to Tumblr, but these ads are expected to be native-based, and will enhance user experience.

Continue to Part 4

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