Tumblr is a good example of an 'uncontrolled platform'. What started as a beautiful blogging platform, has now turned into a junkyard of cat memes, 'blurr-photo-in-the-background' quotes and animated GIF thumbnails of movie snapshots and softcore pornography. Of course your feed depends on what/who you subscribe to..but due to the nature of Tumblr's platform, even the best blogs sometimes reblog either of the junk above, which makes the platform very painful to use. Sometimes, it takes upto 5 whole minutes to load the entire dashboard. Also tumblr has a terrible UX implementation site-wide (Example - if you want to enable the ability of your followers to answer your post, it's title should end with a question mark, after which a tiny checkbox will pop-up from no-where which you can then click to enable answers.)
In my opinion, $1.1 Billion is a really good deal for a trashcan full of 99% animated cat GIFs and 1% decent content. Rejecting it could be a bad idea as far as I know. Yes Instagram was over-valued, but hey, atleast it didn't come with animated cat GIF's.
Have you read Yahoo news lately? It's dumbed-down sensationalistic garbage that makes Tumblr look absolutely brilliant in comparison.
And then later in the paragraph:
> sources say the company only has a few months of cash runway left.
This must be a joke. If you have a few months of cash runway left, $1.1B is more than enough. Seriously. There is no circumstance when this isn't true, unless you have massive non-cash assets on hand.
Yes, I'm aware that they could go raise more money and try to hold out for more, but let's be serious here: they make (effectively) no money and they're being offered well over a billion dollars. Billion -- with a 'B'. This sort of public posturing is just obnoxious.
Also: you can't judge what a business is worth solely by their burn rate or cash on hand. You need more information than that. Every year at a company that has a burn rate is an investment year; they could be reinvesting their income for growth, or forgoing that income for same.
(I have no idea what Tumblr is actually worth in 2013, for what it's worth.)
That's the part that pisses me off, not that they value it differently -- because they don't! They know that $1.1B is a great price for what they have to offer, they just think that they can grumble about it and get a bit more from someone else. This sort of negotiation isn't skillful, it's heavy-handed and completely and utterly transparent.
I think the mindset that describes people who say something like this may echo what others might think. Particularly the saying "pigs get fat, hogs get slaughtered" comes to mind [1].
Also the idea that value doesn't change and that there is no downside risk to not sellig for 1.1b cash (there is since there is always a down side to any decision to some degree).
I know of business people on a smaller scale who had passed up a almost perfect deal and held out and lost the entire deal because some event happened to change the circumstances. (Health of an individual, market, neighborhood, events (like 911, wars etc.) whatever. Things can and do change.
Take your firm that you sold for example. It is made up of key individuals. At a certain point you decided to sell. What if you had held out? Could have gotten more perhaps but also could have had something happen to a few key individuals that might make the firm less attractive. (Not thinking security consulting going out of favor though obviously).
While non of the examples that I am giving apply to tumblr I'm just pointing out that people tend to not look very closely at what they stand to lose vs. what they are holding out for. At least from what I have seen over time.
I don't know if 1.1 is the right number or not, just trying to give another angle to this.
[1] Greediness maybe that's the word I am looking for here.
Keep in mind that there are many sources of money that you can get to keep you afloat if you have a defacto value like that. (This is not like the local bakery that only has a few months of cash and a local businessman comes along and offers to buy for a nice price - better not pass it up!)
If the other potential buyers indicate somehow that they would pay more, then the Tumblr board may perceive that the right thing to do is to be unreasonable on price so that Yahoo! walk away. Tumblr may not approach the others directly, but of course can read any correspondence that arrives.
It's a a dangerous course, as if there is only one other buyer then they may counter with a lower offer, and even if there is a genuine auction then there is the risk that market conditions could change.
And of course all this is also a tactic to nudge the Yahoo! board into making the 'right' decision.
Personally I find that in the end, the question should be: can Yahoo! make better use of the $1B elsewhere? If not, the purchase is worth taking the chance.
However, Conde Nast no longer owns Reddit directly, so Reddit has no effect on Conde Nast's net income (only their shared parent company's).
Also, in Reddit's case, an argument can be made that it's a 'loss leader' - it may be operating in the red, but the value it adds to their portfolio of publications as a whole justifies the cost.
(Consider, for example, the alternative: shutting down an unprofitable Reddit, at which point all the users flock to the "next" discussion website which they don't own and control.)
For a good user-generated content comparable, YouTube wasn't profitable until around 2010-2011[1], 7 years after its founding. It is, of course, very profitable now and looks like one of the best acquisitions ever made in the internet space. Google only had to fork out $1.65Bn in an all-stock transaction for a company which would now be worth many, many times that (some numbers would say over $50Bn [assuming $5Bn income at a conservative 10x P/E],[2] I would say many times more).
Revenue is, of course, a massive lagging indicator in the software industry. I think anyone who sees Tumblr as being overvalued greatly underestimates the sheer size of their user-generated content library, especially because most popular externally-facing Tumblr sites have custom URLs which hide the true size of the network. Most regular internet users will visit Tumblr many times throughout the day without noticing it. You have to remember that its Alexa rank has been climbing non stop over the last few years, and it is now at 19 in the US with a steady pageviews/user count (which not even Facebook can claim).[3]
[1] http://www.reelseo.com/google-ceo-eric-schmidt-claims-youtub...
[2] http://www.benzinga.com/analyst-ratings/analyst-color/13/05/...
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WordPress.com: http://en.support.wordpress.com/post-by-email/
The reason I switched from wordpress to tumblr is wordpress started displaying ads on my blog as they do with some blogs at some times. But if yahoo buy tumblr should consider switching to wordpress or blogger or some self hosting platform
> Tumblr has no real revenue, let alone profit, making it a value dilutive acquisition for Yahoo.
> The acquisition price is artificially being inflated by investors who are trying to squeeze Yahoo, who is trying to "turnaround" its profitable business. The $1.1.bn price is already "too high" for Tumblr's true underlying value.
> Yahoo has no track-record of successfully acquiring, integrating and generating value from such acquisitions. Broadcast.com ($5.7bn), GeoCities ($3.6bn), Inktomi ($235m), Overture ($1.6bn), del.icio.us ($20m), Flickr ($?m), and the list goes on.
I feel sorry for Yahoo's retail investors. I guess "greed is good" when it comes to startup acquisitions.
That's the market. If Yahoo thinks tumblr is worth $1.1B, then Yahoo will pay $1.1B; if not, then they won't. How the price got there (by some artificial inflation or whatever) is irrelevant.
> Yahoo has no track-record of successfully acquiring, integrating and generating value from such acquisitions. Broadcast.com ($5.7bn), GeoCities ($3.6bn), Inktomi ($235m), Overture ($1.6bn), del.icio.us ($20m), Flickr ($?m), and the list goes on.
All the acquisitions cited are 8+ years old. And it is hard to say whether the recent acquisitions (within the past, say, 5 years) are doing well or not.
(I would also vote against the acquisition, but for other reasons)
Start a successful extreme sports website and you will find brands like redbull that's brand fits in with your message, start a music sight and you will find a brand like pepsi that fits in well. Tumblr is all over the place, i have no idea how do you control the message? This website was built to just be cool and over the last six yrs they never tried to tie their identity to the type of revenue model they were anticipating. The reason for this is because they did not think of monetization at all. If you started a magazine back in the day, you would choose your segment and also tie in the magazines identity with the type of ad revenue you want to generate like a house & home magazine, you have home depot etc. This is not a billion dollar company. I am rooting for Marissa but her social media profile is starting to look bigger than her bite.
I will also add that Tumblr did try their had at curated content a few months back but decided to scrap the idea. This shows that they understand the need for more quality consistent content but are unable to execute. Flipboard has totally taken them to school on this front by allowing people to create personal magazines and you find a better quality experience. They need to learn some stuff from Flipboard even though it is not 100% comparing apples to apples.
Considering Tumblr is a waste dump of animated GIF's and memes it's only a matter of time before something new and hip comes along and Tumblr becomes another Geocities.
Remember Geocities? Yahoo! paid 4.6 billion for it back in 1998 and then it lagged behind and got shut down. 4.6 billion down the drain, Tumblr will be the next Geocities and the novelty of a free blogging platform all the hipsters used to use before something cooler and new came along will wear off like Myspace when Facebook took off.
Previously Yahoo have made tree $1 billion offers, one to each of eBay, Google and Facebook. All where turned down, and for all it turned out to be the right ting to do[0].
0: http://www.inc.com/allison-fass/peter-thiel-mark-zuckerberg-...
Someone should build a straight up reddit-for-blogs.
They "expect" $100M revenue and $60M profits in 2013.
Even if their expectations work, whoever offered them $1.1B is a complete idiot.
