
The $3B+ Exit Tumblr Could Have Had - dmor
http://www.daniellemorrill.com/2013/05/the-3b-exit-tumblr-could-have-had/
======
useflyer
There are a two major faults with the author's analysis which lead me to
believe this post should not be relied on.

1\. Advertising rates are far below the author's $10-20 CPM estimate for
dashboard advertising; $10-20 is for legitimately premium advertising such as
high-end audiences, wrapping a website, etc. Dashboard / banner ads will fetch
$0.5-3 CPM the way Tumblr is running them.

2\. The "valuation" formula of 10x trailing ("or"?) forward revenue is
misplaced. Revenue multiples in acquisitions are often reserved for companies
which are mature and predictable, not in early stages of their revenue plan.
Corporate acquirers will often times use the expectations of the revenue
created for the acquirer, which has little to do with the target in the status
quo. Yahoo's expectations of revenue creation could be anything, and they have
their own internal formula which we can't glimpse.

~~~
pkmehta
Exactly. What makes it worse is that Tumblr has lots of soft core porn and
other unsavory content which brand advertisers don't want to touch with a 10
foot pole.

Plus, the P/S of 10x looks pulled out of ye' olde arse. Google's trailing P/S
is 5.6x and Yahoo's is similar. AOL is 1.31x. What media company that might be
a "comp" trades for 10x.

~~~
dmor
HuffPo, and I said it was steep not what people should expect to get.

Huffington Post, a media company, was purchased by AOL for $315M @ $30M rev.
That's 10x. Stop trolling.

~~~
pkmehta
You could goto Bloomberg.com or Yahoo Finance and get real P/S ratios but you
used the uncontested paragon of financial data - HuffPo.

And you said it's high but still used it in your headline cuz you thought
would have a higher chance of getting to the top of HN.

I guess pursuit of provocative > properly researched.

~~~
pg
Will you both please stop?

~~~
ryanmerket
Did the flame war algo catch this one? If so, well done.

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mratzloff
The only reason Yahoo made an offer is because they were afraid someone else
might. Otherwise they'd be content to wait for the layoffs to begin before
giving an opening bid of $150 million.

Tumblr seems to have followed the SV model in all respects but one. Raise a
lot of money, get a lot of users, and staff up way beyond your needs (175
employees)? Check. They missed the last one, though: don't bother to monetize
so you don't run the risk of doing it badly and lowering your evaluation.

The urgency to get a billion dollar offer on the table as the wheels fall off
of the bus is so utterly ridiculous and symptomatic of the problem with SV
culture.

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dakrisht
This is another one of those SV deals that simply DO NOT make sense
whatsoever.

So Yahoo! wants the young audience (check), but what are they going to do?
Throw ads at young teens (who browse porn and nail art on Tumblr)? Have a
"bigger" presence in mobile? Integrate Flickr with Tumblr? Don't get this.

And how does Yahoo! still have cash? Jesus

The acquisition just makes zero sense, Tumblr price (valuation) makes even
less sense:

\- $15M in revenue (down $85M from the projected 2013 of $100M) \- 175
employees (for what? 150 of them are probably useless with regard to the
company) \- Running out of cash (so hey, let's sell for $1B since we'll be
worth $100M in 6-months anyway)

Why is SV rushing in to buy this company as, like another user said, the
wheels are falling off? Where is the value, yet alone $1B value?

Just stupid SV math.

~~~
neilc
_And how does Yahoo! still have cash? Jesus_

You realize Yahoo! is a profitable company, right?

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goronbjorn
> In the end Tumblr won’t see a bigger exit because they didn’t prove they
> could monetize their massive traffic before time (and money) ran out.

Instagram had $0 in revenue when they were acquired for $1 billion in
cash/stock. The price paid in that instance was for _potential_ , and it's
likely to be the same in the case of Tumblr.

~~~
nwh
We should probably avoid using Instagram in examples. It's such an insane
outlier that it doesn't make sense to compare anything to it.

~~~
BuddhaSource
Tumblr is very similar to Instagram and should be considered as example.

The overlap between Instagram and Tumblr users in the early days is huge. Both
are targeted at young crowd with similar taste graph.

As a Platform Tumblr has great potential in spreading the content. Reblogs
works just like retweet and a good content can potentially go viral. That also
includes rebloging of promotional content.

I personally feel people who don't use Tumblr see this as yet another blog
site. They have the best mobile app to post pics, stories, videos & even
audio. After Instagram, I am slowly getting addicted to Tumblr's mobile app.

~~~
mistircek
I think Instagram acquisition and this are not similar cases. Instagram was a
direct competitor of a core product of Facebook: Photo Sharing while there's
no such competition in Tumblr case.

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0majors
Having worked in both media and creative agencies I can't agree with the
potential revenue analysis in the article.

User Generated Content, as many here have pointed out, is not valuable and
often is indeed toxic for big brands. The young audience surfing cat pictures
is also not valuable. What products will the advertisers sell to them? Games,
some fashion, fizzy drinks but then what?

Lastly, non targeted audience is also less valuable for obvious reasons. This
is why they are looking at ~ $0.75 CPM but LinkedIn campaigns start at $1.50
and go only up from there.

Successfully monetizing anonymous teenagers wasting time on the internet is
something nobody has managed to do so far. Ask Digg.com

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azifali
The Pricing that Danielle has quoted - $10-15 RPM is extremely high.

First - Tumblr is not a "Premium" Property. NBCNews.com and Business week is.

Second - Porn which is plentiful on Tumblr is the opposite of premium. It
tends to be cheap and not easily monetizable.

Third - A better metric to use would be CPM. Un-targeted ads deliver <$1 CPM
Typically. These are the Run off Network kind of campaigns.

Targeted ads such as search / display targeting, retargeting typically deliver
between $2.5 - $5.00 which represents the best case.

Fourth - The ad platforms tend to take a revenue cut + platform fee which
easily amounts to 30-40% of that.

Fifth - I am assuming that Tumblrs ads are direct buys in which case it is
highly unlikely that they can quote CPMs given in my earlier statements. This
is because they probably don't have enough technology to deliver those kind of
media buys yet.

Net net..your numbers are off. The $3b title is a nice bait but the valuation
numbers are off.

~~~
jacquesm
Porn is not just 'not monetizable', it is toxic to regular advertisers.

You really don't want that ad for the new car next to grandma in her see-
through... bad associations.

~~~
standby
But that is not how the advertising works on Tumblr. Read this for a clearer
insight/explanation: [http://allthingsd.com/20130518/why-yahoo-doesnt-think-
tumblr...](http://allthingsd.com/20130518/why-yahoo-doesnt-think-tumblr-has-a-
porn-problem/)

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comex
As a sometime Tumblr user, here's hoping that whether acquired or not, Tumblr
manages to find enough revenue to keep itself running well into the future,
but does so without unduly alienating its users or making the site feel
compromised. That other T*r site has well demonstrated the rockiness of the
road from potential to actual profitability.

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davidm
I think combining Flickr and Tumblr could be a massive win for Yahoo! They
have monetised Flickr successfully and the model they use to do that combined
with Tumblr's current model could see them transform revenues on both titles
very quickly. I do think Tumblr should grab the offer while it's on the table,
however.

~~~
ms-rm
Quick question: how did Yahoo monetize Flickr?

~~~
davidm
Quick answer: Freemium +

~~~
dakrisht
Quick rebuttal: Flickr barely makes any money.

~~~
nikcub
and the freemium model was in place before Yahoo bought them

I was a pro user, cancelled when Yahoo bought Flickr and forced us all to use
Yahoo accounts.

~~~
davidm
I did completely the opposite. I like what Yahoo have done with Flickr.

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troymc
I find it odd that a freemium model was never considered by Tumblr. It has
worked for WordPress.com, which is very similar.

<http://en.support.wordpress.com/upgrades/>

<http://vip.wordpress.com>

~~~
coolsunglasses
Wordpress is used by people managing professional identities and business
related content, Tumblr is predominantly young people wasting time on the
internet.

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ianstallings
I really don't understand this Internet math.

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pod4369
"According to Forbes Tumblr is targeting $100M revenue in 2013 but, according
to sources I spoke to who are familiar with the company, actual Q1 revenue
growth was flat and Tumblr is on track to do only $15M in revenue this year."

This is unbelievable. I can't believe they're running out of the $85M so soon
after raising it, and have basically nothing to show for it. I'd be pretty
outraged if I were an investor.

~~~
mratzloff
They have 175 employees, so it's not too surprising they blew through $85
million in 8 months.

~~~
jacquesm
85000000/175=485714, that's actually quite surprising unless the averge flickr
employee grosses more than 50 K per month.

$85 million is a lot of cash.

~~~
Alphasite_
Shouldn't that be /8? So around 6k per month.

~~~
mratzloff
You're off by one decimal place.

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uladzislau
I think the potential Tumblr acquisition offer is based on userbase/audience
value rather than any kind of (current) monetization.

It seems Yahoo is trying to extend their reach in the active/young people
market. Tumblr audience is a perfect fit for this strategy and sure Yahoo is
ready to pay premium as there are not many comparable platforms available for
acquisition.

~~~
dragondilesh
The problem with active/young people market is they are very temperamental to
ads, if you don't treat your user base like the tumblr founders have, they
would have easily changed to another platform with less ads. Sure if yahoo
acquires tumblr they gain direct access to this marketbase but if they tarish
what tumblr is now, with a bad ad revenue scheme they will very easily lose
that market base to something else.

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jpalomaki
Would it even be feasible to monetize Tumblr by running ads on massive scale?
I would assume one reason for its popularity is the lack of ads. This has for
example allowed quite relaxed page templates, you can make the site look
whatever you want. With mandatory ads things would be more difficult.

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presty
I love how non-tumblers just like to throw out the fact that tumblr is full of
porn omgz!!111 and that is really bad for ads etc

try using tumblr before making such comments. you only see porn if you
subscribe to porn tumblrs or people who like to reblog such things.

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hayksaakian
Note: there is a share button for google reader on the page.

I thought reader was shut down?

~~~
maxmcd
July 1

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programminggeek
To be honest, businesses that are good at making money will always be valued
higher (relatively speaking) than businesses that are just good at getting
users.

Getting someone to use your free product is a different skill than getting
advertisers to put their ads on your product or getting people to pay for your
product.

Making money is a skill and if your company doesn't figure out how to do that
successfully, you shouldn't expect to sell for a large amount of money.

At the end of the day, businesses are about making money, you know getting
customers to pay you. They aren't about getting people to use your free
product.

~~~
yesplorer
I cant figure out a single reason why this comment was downvoted. can anyone
help me understand? genuinely curious please.

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willbill
I'm very curious to know how many consumer focused sites/companies/apps have
had 1 billion+ buyouts.

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pasbesoin
Completely OT, but I quite like the photograph of early evening San Francisco.
I wouldn't mind a link, if it's available somewhere -- for my private
enjoyment; not to duplicate the blogger's design.

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orangethirty
Danielle,

What do you reason is Tumblr's intrinsic value?

