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Yahoo’s Choice: More Tumblr’s or More Buybacks

Jeff Bailey

Time will tell whether paying $1.1 billion for Tumblr is a wise decision, but the deal, announced this morning, certainly shows Yahoo’s (YHOO) new-ish CEO Marissa Mayer is serious about restarting growth at her company.

One such deal, of course, won’t likely be enough to pull Yahoo out of its years-long funk, so one quickly wonders: can Mayer afford more of these?

As YCharts has written before, a big surge of stock buybacks at Yahoo has helped push the stock higher under Mayer.

YHOO Chart

But that has also dented Yahoo’s cash pile and its operations don’t throw off enough cash to quickly re-fill the barrel.

YHOO Cash and ST Investments Chart

Mayer and Yahoo are competing on deals against companies with far larger resources, such as Google (GOOG), Microsoft (MSFT), Apple (AAPL), Amazon (AMZN) and Facebook (FB). (Note that Apple’s cash hoard is vastly understated below because it keeps most of its money in longer-term investments.)

GOOG Cash and ST Investments Chart

Buybacks can be smart or dumb, or really dumb, depending on a company’s circumstances. But for companies that require a big cash cushion for liquidity, and for those seeking rapid growth, spending money on shares can undermine the basic business strategy. Yahoo stock isn't pricey, based on its PE ratio, but Mayer is trying to do more than gradually build up a stock through financial maneuvers.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at editor@ycharts.com.

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