SAN FRANCISCO (MarketWatch) — Yahoo Inc.’s $1.1 billion deal for Tumblr was shortly seen by analysts as a daring, probably game-changing long-term guess, however one fraught with dangers for a Net portal combating so many different challenges.
The inventory rose practically 2% earlier than slipping into the pink after which closing with a achieve of simply 6 cents a share at $26.58.
The deal was Yahoo’s biggest acquisition so far under Chief Executive Marissa Mayer, who stated it was an “exception,” given the corporate’s acknowledged deal with smaller offers.
In a while Monday afternoon, Mayer hosted a press convention in New York, to announce a brand new Yahoo workplace on a couple of flooring of the previous New York Occasions constructing, and an enormous revamp of its photo-sharing service, Flickr. Tumblr, which relies in New York, won’t be transferring to the brand new Yahoo workplace, as Yahoo has promised to maintain the corporate separate.
The hefty value of the Tumblr deal had some analysts frightened, whilst they noticed promise in Yahoo’s sport plan. It’s been practically 10 years since Yahoo spent greater than $1 billion on an acquisition — the final case was the acquisition of search-ad agency Overture for $1.6 billion in July 2003, in response to FactSet.
“Whereas we imagine such a valuation is excessive, we imagine the mix of Tumblr’s rising utilization and Yahoo’s advert know-how current a chance to enhance consumer monetization over time,” Barclays Capital analyst Anthony DiClemente stated in a observe.
Doug Anmuth of J.P. Morgan was additionally constructive, writing in a observe that “we imagine administration must take extra daring motion like this to strengthen the core enterprise.”
Many others had been cautious on the deal, nevertheless, given the worth tag and lack of revenues at Tumblr.
RBC Capital’s Mark Mahaney stated he was “impartial” on the deal, saying: “Strategically, this deal is sensible. Yahoo’s fundamentals have been subpar for quite a few years, partly due to the corporate’s lacking presence in social and cellular.”
“Tumblr could assist Yahoo develop that presence,” he stated, given the location’s “extremely engaged consumer base that skews to the youthful demographic” and its “comparatively important worldwide presence.”
However shopping for Tumblr most likely gained’t have any significant impression on Yahoo’s financials within the close to time period, he stated.
“Yahoo just isn’t more likely to see a income impression from Tumblr in 2013 or 2014,” Mahaney wrote. “That makes this a long-shot/long-term funding, the return on funding on which gained’t be clear for a number of years.”
Bernstein’s Carlos Kirjner supplied a extra downbeat view, saying that whereas Tumblr “has many attributes that make it a probably attention-grabbing acquisition goal for a big, established Web firm,” he’s not that optimistic about Yahoo’s means to benefit from these strengths.
“We expect Yahoo’s core companies faces a myriad of challenges, as evidenced by the deteriorating efficiency of its show enterprise, and therefore will not be in a powerful sufficient place to take full benefit of the upside potential that Tumblr could supply,” he wrote.
“Subsequently, we see the comparatively massive $1.1 billion money acquisition as dangerous and certain untimely,” he stated.
A lot of Yahoo’s present market worth stays tied up in its massive possession stake in Alibaba, the Chinese language e-commerce web site that’s anticipated to go pubic someday this yr, which might present an enormous monetary upside to Yahoo.
“Tumblr doesn’t remedy Yahoo’s strategic points, which stem from an absence of centrality, given its previous reliance on e-mail,” wrote Jordan Rohan of Stifel Nicolaus. “However Yahoo shares are nonetheless pushed extra by the worth creation at Alibaba Group than by the dearth of elementary momentum at Yahoo’s consolidated properties.”
He stated that “this clearly does nothing to retard the worth creation course of at Alibaba.”
Wall Road was additionally more likely to have blended views to Yahoo’s different information late Monday afternoon: It should start providing customers one free terabyte — one thousand gigabytes — of storage on the brand new Flickr, probably the most supplied totally free by any Web firm, and much more than that supplied by Mayer’s previous employer, Google Inc. Mayer stated Yahoo will host the images at its knowledge facilities.