# How can Yahoo even buy Tumblr for $1.1B **URL:** \ **Category:** Factual Questions\ **Created:** [May 21, 2013, 2:49am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896 "2013-05-21T02:49:19Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [May 21, 2013, 2:49am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/1 "2013-05-21T02:49:19Z")
I never hear anything good about Yahoo’s finances. Is the company making money? How can it afford to spend a huge sum like that? Thanks for orienting me! ---
**Author:** ![tellyworth](https://avatars.discourse-cdn.com/v4/letter/t/977dab/32.png) [@tellyworth](https://boards.straightdope.com/u/tellyworth)\ **Post date:** [May 21, 2013, 2:53am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/2 "2013-05-21T02:53:21Z")
Presumably with the [$5.4 billion](http://investor.yahoo.net/releasedetail.cfm?ReleaseID=756898) in cash they had sitting around. ---
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [May 21, 2013, 3:16am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/3 "2013-05-21T03:16:25Z")
If they have that much cash sitting around, why are they not considered a successful company?! ---
**Author:** ![LawMonkey](https://avatars.discourse-cdn.com/v4/letter/l/d6d6ee/32.png) [@LawMonkey](https://boards.straightdope.com/u/LawMonkey)\ **Post date:** [May 21, 2013, 3:25am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/4 "2013-05-21T03:25:04Z")
Or, just as likely (even w/ $5.4B in cash sitting around) with lots and lots of leverage. There are certain advantages to debt financing, even if you _ **could** _ just walk in with $1.1B in a briefcase and buy it cash money. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [May 21, 2013, 3:34am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/5 "2013-05-21T03:34:15Z")
> [@Aeschines](#): > > If they have that much cash sitting around, why are they not considered a successful company?! Why do you think they aren’t? At one point they were rumored to be sold to Microsoft for about $50 billion. $1.1B is a small fraction of the value of the company. Even at current prices its market cap is nearly $30B. The negative news is just that it isn’t as successful as it used to be. Earnings had been dropping year-over-year for awhile until recently and Yahoo! hasn’t really charted a path forward in the mobile world. ---
**Author:** ![lisiate](https://avatars.discourse-cdn.com/v4/letter/l/f05b48/32.png) [@lisiate](https://boards.straightdope.com/u/lisiate)\ **Post date:** [May 21, 2013, 3:42am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/7 "2013-05-21T03:42:17Z")
I still can’t understand the valuations of internet companies. From wikipedia > [@](#): > > Tumblr made $13 million in revenue in 2012 and hopes to make $100 million in 2013. Tumblr reportedly spent $25 million to fund operations in 2012 Buying a company for 84 times last years earnings (or even 11 times this year’s hoped for earnings) just seems crazy to me. I’m just a dinosaur I guess… ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [May 21, 2013, 3:46am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/8 "2013-05-21T03:46:36Z")
It does seem high, but apparently Tumblr was valued at $800M a few years ago. So it’s not crazy high. It’s not $5B-for-Geocities high (which is what Yahoo! paid after adjusting for inflation back in 1999). Yahoo! killed that one so we’ll see how they do with Tumblr. ---
**Author:** ![Joey\_P](https://avatars.discourse-cdn.com/v4/letter/j/919ad9/32.png) [@Joey\_P](https://boards.straightdope.com/u/Joey_P)\ **Post date:** [May 21, 2013, 4:45am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/9 "2013-05-21T04:45:36Z")
> [@lisiate](#): > > I still can’t understand the valuations of internet companies. From wikipedia > > Buying a company for 84 times last years earnings (or even 11 times this year’s hoped for earnings) just seems crazy to me. I’m just a dinosaur I guess… I don’t think Tumbl has ads right now, they may in the future, but it’s not that, it’s that as of right now, Yahoo has no Social, Mobile or Cloud presence. Tumblr will knock out two birds with one stone (Social and Mobile). Marissa is making a lot of changes and this is one of them. $1.1 billion seems like a lot of money, but I’m guessing she knows what she’s doing. On the one hand, you have to remember it’s like a store saying “Let’s bring in a [service] kiosk”. The kiosk itself might not be worth that much, but if the service/brand is well established and has lots of customers, now all those customers will have to come there to get their service. Tumblr might be worth 1.1b to Yahoo, but only be worth half that to some other company who can’t do anything with all the traffic other then provide them with Tumblr. OTOH, I have to wonder if part of the reason she gave them 1.1b was, even a little bit, for the media attention of being more then the 1b that Instagram was bought for a little while ago. ---
**Author:** ![Fuzzy\_Dunlop](https://avatars.discourse-cdn.com/v4/letter/f/848f3c/32.png) [@Fuzzy\_Dunlop](https://boards.straightdope.com/u/Fuzzy_Dunlop)\ **Post date:** [May 21, 2013, 10:44am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/10 "2013-05-21T10:44:04Z")
> [@lisiate](#): > > I still can’t understand the valuations of internet companies. From wikipedia > > Buying a company for 84 times last years earnings (or even 11 times this year’s hoped for earnings) just seems crazy to me. I’m just a dinosaur I guess… It’s last year’s or current year pro forma _revenue_. They had negative earnings. ---
**Author:** ![CookingWithGas](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cookingwithgas/32/485_2.png) [@CookingWithGas](https://boards.straightdope.com/u/CookingWithGas)\ **Post date:** [May 21, 2013, 12:48pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/11 "2013-05-21T12:48:22Z")
They’re not buying a company, they’re buying eyeballs. ---
**Author:** ![Darth\_Panda](https://avatars.discourse-cdn.com/v4/letter/d/ee7513/32.png) [@Darth\_Panda](https://boards.straightdope.com/u/Darth_Panda)\ **Post date:** [May 21, 2013, 1:05pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/12 "2013-05-21T13:05:53Z")
> [@Aeschines](#): > > If they have that much cash sitting around, why are they not considered a successful company?! Usually having a bunch of cash sitting around isn’t a good thing. A great company will always have someplace to invest it for good returns. You need working cash for operations, but anything beyond that is a wasted investment for shareholders. You don’t invest in a company so it can put your money in the bank and earn half of a percent on it. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [May 21, 2013, 1:09pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/13 "2013-05-21T13:09:17Z")
> [@CookingWithGas](#): > > They’re not buying a company, they’re buying eyeballs. This is especially creepy seeing how I just posted about _Coraline_. ---
**Author:** ![Diceman](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Diceman](https://boards.straightdope.com/u/Diceman)\ **Post date:** [May 21, 2013, 1:27pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/14 "2013-05-21T13:27:36Z")
> [@Darth\_Panda](#): > > Usually having a bunch of cash sitting around isn’t a good thing. A great company will always have someplace to invest it for good returns. You need working cash for operations, but anything beyond that is a wasted investment for shareholders. You don’t invest in a company so it can put your money in the bank and earn half of a percent on it. As I understand it, a lot of companies are sitting on mountains of cash these days because there’s still a lot of uncertaintly about the economy, especially in companies with exposure to Europe. They’re hoarding all that money in case they need it to ride out a prolonged recession, or even a depression. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [May 21, 2013, 2:04pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/15 "2013-05-21T14:04:38Z")
> [@Diceman](#): > > As I understand it, a lot of companies are sitting on mountains of cash these days because there’s still a lot of uncertaintly about the economy, especially in companies with exposure to Europe. They’re hoarding all that money in case they need it to ride out a prolonged recession, or even a depression. That’s true. A lot of companies are currently in the unenviable position of having tons of cash and nothing they want to spend it on. In those situations, shareholders will often start to agitate for dividends and buybacks. That has happened at Apple, which still has an enormous cash horde and started using some of it to buy back shares and pay dividends recently. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [May 21, 2013, 2:51pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/16 "2013-05-21T14:51:27Z")
> [@friedo](#): > > In those situations, shareholders will often start to agitate for dividends and buybacks. That has happened at Apple, which still has an enormous cash horde and started using some of it to buy back shares and pay dividends recently. Hoard. The cash horde is the mass of people who want the dividends. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [May 21, 2013, 2:55pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/17 "2013-05-21T14:55:47Z")
And if you cash whored you might have met up with one of the cash horde using their cash hoard. ---
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [May 21, 2013, 9:17pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/18 "2013-05-21T21:17:50Z")
I understand the ROA thing. I was just surprised to learn that Yahoo had any cash at all, since I’ve never heard a good thing about them in the press since, say, 2000. Or at least it seemed so to me. ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [May 21, 2013, 9:39pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/19 "2013-05-21T21:39:20Z")
A lot of their current cash _hoard_ came from their sale of their 40% stake in Alibaba for some $7.1 billion back in 2012. ---
**Author:** ![Dahnlor](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dahnlor/32/533_2.png) [@Dahnlor](https://boards.straightdope.com/u/Dahnlor)\ **Post date:** [May 21, 2013, 10:00pm UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/20 "2013-05-21T22:00:04Z")
Yahoo! has actually been consistently making a profit for quite some time, at least ever since they got into PPC advertising in the early 2000s, which has essentially been their cash cow ever since. I believe that only reason the press hasn’t been particularly friendly is because profits weren’t as high as projections. That, and because they’re Not Google. Yahoo! has been on the upswing since Marissa Mayer took over last year, which I think is at least in part due to the Google-juju that she brought with her. The stock has grown significantly since September, almost doubling in value, which accounts for a lot of that extra cash (in addition to the Ali Baba sale, as **friedo** pointed out). ---
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [May 22, 2013, 3:35am UTC](https://boards.straightdope.com/t/how-can-yahoo-even-buy-tumblr-for-1-1b/658896/21 "2013-05-22T03:35:59Z")
Thanks for the insights!