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Yahoo to Purchase Tumblr: WSJ

The Wall Street Journal reported that Yahoo! (NASDAQ: YHOO) has agreed to purchase Tumblr for $1.1 billion in an all cash deal. Tumblr, a six year old company with at least 100 million users may not have much revenue but it could be the way Yahoo! becomes cool again. Yahoo!, a company struggling to find its niche in a world where consumers’ online habits are evolving rapidly, will reportedly allow the site to run independently, at least at the beginning.

Paying more than $1 billion for a company that has little or no revenue is nothing new. Google (NASDAQ: GOOG) purchased YouTube for $1.65 million seven years ago and Facebook (NASDAQ: FB) purchased Instagram for $1 billion. The latter acquisition has proven to be lucrative for a company that was seeing an exodus of users to Instagram as it was more popular to the younger demographic.

Yahoo CEO Marissa Mayer’s deal represented a premium valuation for Tumblr. It’s previous round of venture funding valued the company at $800 million. Some believe that the move represents Yahoo’s need to make a big move to boost revenue numbers that were stuck around $5 billion for the past six years.

There’s no doubt that the model works. Facebook, in particular, has proven that providing free content to viewers results in major advertising revenue.

Tumblr was founded in 2007 and currently has 175 employees. It has 108 million blogs and had 117 million unique visitors in March–a 58 million viewer increase year over year.

Disclosure: As of the time of this writing, Tim Parker had no position in any of the companies listed.

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