Is It Time to Temper Expectations for Yahoo! Inc. (YHOO)?

Assuming Mayer comes to that realization, she is then given the challenge of monetizing Tumblr, which is difficult, if not impossible. It is first and foremost a blogging site, driven by user pages. What this means is that it’s easy for Mayer to sell advertising on Tumblr.com (assuming she does so without alienating users) but it’s much more difficult for her to sell advertising on johnsmith.com. Even Mayer herself admits that she’s not sure how the $1.1 billion investment will generate a suitable return.

Foolish conclusions

The acquisition of Tumblr does reflect recognition of Yahoo! Inc. (NASDAQ:YHOO)’s bid for relevance—before Mayer, start-ups shied away from Yahoo!. However, it’s not going to turn the company around. It’s too hard to monetize, and its user base is unlikely to become loyal to other Yahoo! sites.

If Yahoo! is able to acquire Hulu, that would be a huge step toward success. Hulu would give Yahoo! another large user base, and most importantly it is already monetized. Yahoo! needs to start showing rapid growth both in audience and revenue if it wants to compete with Facebook and Google. After a year atop the company, Mayer will soon be held to the same standards as other executives in the industry.

There’s pressure to perform—Mayer knows this—and if she can figure out a way to monetize her user base she’ll be able to meet expectations. An energized culture at Yahoo! Inc. (NASDAQ:YHOO) is a huge upside, and could carry the company to new heights. There’s a strong potential for increases in share price, but at the same time there’s a lot of risk. It could skyrocket, or it could tank—that’s all dependent upon how much revenue Mayer can bring in and how large a user base she can convert.

The article Is It Time to Temper Expectations for Yahoo!? originally appeared on Fool.com and is written by Hunter Hillman.

Hunter Hillman has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Hunter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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