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Yahoo buys Tumblr for $1.1 billion and promises 'not to screw it up'

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Having just bought Tumblr for $1.1 billion, Yahoo has expressed huge confidence by promising ‘not to screw it up’. Investors will no doubt take heart from the idea that screwing it up was ever even on the table, but to be fair, Yahoo does have form. Chief executive Marissa Mayer said Tumblr would operate independently with David Karp remaining in charge in a promise "not to screw it up" while Yahoo's chief financial officer, Ken Goldman informed analysts that they would see a spike in Yahoo’s numbers as early as 2014 – an ambitious claim by any standards.

The Tumblr acquisition is by far the largest deal Yahoo has made since Ms Mayer took over at the helm last July and she described the acquisition as a "unique opportunity."

"On many levels, Tumblr and Yahoo couldn't be more different, but at the same time, they couldn't be more complementary," she added

Meanwhile, the newly wealthy Mr Karp, 26, who owns 25% of the privately-owned company he co-founded with Marco Arment in 2007 – a stake that is now worth $275 million, said he was "elated".

"Tumblr gets better faster with more resources to draw from," he added. Mr Karp stressed that nothing would change within the running of the company.

Tumblr's 2012 revenue was just $13m, according to a report by Forbes magazine, raising questions about the 1.1 billion Yahoo had just coughed up.

"Even if revenue was $100 million, it means Yahoo paid 10 times revenue," said BGC Financial analyst Colin Gillis. "Ten times is what you pay to date the belle of the ball. It's on the outer bands of M&A."

Tumblr hosts 108 million blogs, with a total of 50.7 billion posts, but has struggled to capitalise on its user base, and despite a long held reluctance to host advertising, they announced last year that they would start using ads in a limited capacity

Ms Mayer said Yahoo would now work with Tumblr to create ads that "are seamless and enhance the user experience".

Ahhh – THOSE kind of ads – the fictional fluffy imaginary ones!

Written by Cyrus Bozorgmehr - Google+ Profile - More articles by Cyrus Bozorgmehr

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