Unfortunately, Tumblr may not have so clear-cut a platform or niche to monetize. Not to mention, Tumblr allows domain names or fake user names, which can make it more difficult for Tumblr to guarantee that an ad is targeted at the right audience. When you consider that companies such as Twitter, Facebook, and Google Inc (NASDAQ:GOOG) can allow advertisers to reach its targeted audience, it is hard to imagine a scenario where advertisers elect to use Tumblr as their platform of choice.
Was It Because Of Mobile?
My final point to be made is that with mobile growing rapidly, sometimes a social media company is more pricey if it has a dominating presence in mobile. In the last year, we have witnessed Facebook struggle with entering and monetizing the mobile arena. Therefore, a high-profile acquisition of a company with a good presence in mobile could benefit a large social media company, allowing it to utilize new strategies or patents.
This is the case with Yahoo! Inc. (NASDAQ:YHOO), as just 16% of all Yahoo!-related activities occur on mobile as of its last quarter. Facebook has also lagged in mobile, with just 25% of all current activity on mobile. Thus, you’d think that Yahoo! would acquire a company to drastically increase its mobile presence. However, Tumblr has just 25% of all activity on mobile. This compares horribly to the 49% that Twitter has achieved in the last 12 months.
Final Thoughts
Yahoo! CEO Marissa Mayer has vowed “not to screw this up” — but after exploring Tmblr’s lack of mobile presence, its absence of an advertising platform, and the very large premium paid to acquire the company — I beg to differ with Mrs. Mayer.
Yahoo! has a long and storied history of bad acquisition. Most notably, the company acquired GeoCities in 1999 for $3.57 billion and Mark Cuban’s Broadcast.com for $5.9 billion in the same year. Both companies no longer exist — they had limited revenue with no clear monetize program in place — much like Tumblr.
In 2001, Yahoo! Inc. (NASDAQ:YHOO) fell to $4 and had to swallow the costs associated with buying overpriced online “technology” websites. While Tumblr’s $1 billion purchase price is somewhat small relative to many of its past failed acquisitions, it is still necessary to point out Yahoo!’s troubles and its tendency to overpay. Sooner or later, $1 billion failed acquisitions weigh on a company — which investors should keep in mind — although it is yet to be seen whether Tumblr will experience the same fate.
Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Did This Tech Giant Make a Wise Acquisition? originally appeared on Fool.com and is written by Brian Nichols.
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