Reported overnight – Yahoo is in the process of buying blogging service Tumblr for $US1.1 billion cash, – based on the premise it needs to provide a much-needed social media platform to reach a younger generation of users and breathe new life into its ailing brand.
The deal, announced on Monday, is a bold bet by Yahoo Chief Executive Marissa Mayer to revitalize the company by co-opting a Web property with strong visitor traffic but little revenue.
The combination of Yahoo and Tumblr creates an online powerhouse with roughly one billion users, which will draw in more advertisers and help Yahoo keep visitors on its properties for longer periods of time, Mayer told Reuters in an interview.
“Tumblr in terms of users and traffic is an immediate growth story for us,” she said.
Interestingly when we look further into the deal the numbers are amazing – Whilst Tumblr does not publish it’s financial results – media reports the revenue at $13M ( not earnings but revenue ! ) and the price of $1.1billion is an 84 times multiple on revenues – if it was 84 times EBIT it would be an amazing deal – at 84 times revenue it is a massive strategic premium.
Yahoo is one of several companies that have paid considerable premiums for acquisitions in recent years – Facebook bought photo site Instagram for $US1 billion last year and in 2006, Google paid $US1.6 billion for YouTube.
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