Yahoo!’s Tumblr purchase
Yahoo! recently reported that it would spend $1.1 billion to acquire Tumblr. Since the blogging platform has a dedicated following of young, hip users, Yahoo! Inc. (NASDAQ:YHOO) has taken pains to stress that Tumblr will operate as a separate entity within the company’s corporate ecosystem. The goal of the acquisition seems to be to attract users to Yahoo!’s corner of the Web for longer periods of time and foster a greater affinity for its services among young, affluent consumers.
Potential offer for Hulu
Yahoo! appears ready to pull the trigger on Hulu as well. According to reports, this acquisition could cost the company up to $800 million and may provide it with a strong foothold in the rapidly growing online streaming space. With Hulu positioned as the primary source of television-based entertainment for millions of younger consumers, Yahoo! Inc. (NASDAQ:YHOO) could inadvertently find itself competing with Netflix, Inc. (NASDAQ:NFLX) and other big cable companies in the not-too-distant future.
What is Yahoo! building? Can it work?
These two acquisitions demonstrate that Yahoo! remains committed to moving beyond its legacy advertising and content businesses. Although the company’s stock has not jumped by a tremendous amount in the wake of the Tumblr acquisition, its broad rise over the past several months has encouraged long-term investors.
Yahoo! Inc. (NASDAQ:YHOO) clearly wishes to parlay this momentum into the development of a multimedia content ecosystem that is deeper and more sophisticated than that of the Huffington Post. Ultimately, the company’s video channels and blog platforms could support tremendous amounts of ad revenue and threaten Google’s pole position within the broader tech ecosystem. While Yahoo! has a long way to go before it can call itself Google Inc (NASDAQ:GOOG)’s equal, it may currently be taking the first steps towards this goal. Of course, there are no guarantees in the fast-evolving technology space. A disruptive newcomer could always render Yahoo! Inc. (NASDAQ:YHOO)’s strategy obsolete.
Invest or stay away?
Although Yahoo! can easily afford these acquisitions, it seems likely that it will take some work to integrate the operations of Tumblr and Hulu into Yahoo!’s compartmentalized corporate structure. Moreover, the financial impacts of these purchases will linger on Yahoo!’s balance sheet for the foreseeable future. However, both buys offer intriguing possibilities that investors cannot ignore.
Going forward, investors may wish to re-evaluate their pessimistic outlooks on Yahoo! Inc. (NASDAQ:YHOO). Relative to Google, the company remains quite cheap. While it probably will not trade at Google’s multiples in the near future, it is probably worth more than its current price indicates. As such, investors who initiate a long position in the company at these levels could be handsomely rewarded.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Google.
The article A Few Reasons Why You Shouldn’t Ignore Yahoo! originally appeared on Fool.com.
Mike 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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