Tumblin’ Dice

There’s been some hubbub lately about the potential tax implications of Yahoo’s planned spinoff of its 15% stake in Chinese ecommerce giant Alibaba. Those shares, worth about $25 billion, would account for the lion’s share of Yahoo’s $29 billion market cap at close of trading on Monday. This math got me thinking about Yahoo’s other big acquisition – Tumblr, which it bought for $1.1 billion in 2013. Namely, I would argue that, like Alibaba, Tumblr may be worth much more than Yahoo’s core business, which investors value at close to zero.

In retrospect, Tumblr seems like a very savvy acquisition, and not just because it phonetically matched Yahoo’s other big acquisition, Flickr. Like Facebook’s 2012 purchase of Instagram, $1 billion seemed like a great deal of money at the time, but three years have shown the potential for exponential growth in blogging and image sharing platforms. (And, I suppose, most sharing platforms). It would be hard for me to place a valuation on Tumblr, but one can look at Pinterest as a potential basis for comparison. The service recently crossed 100 million user threshold, and was pinned at a valuation of $11 billion. Tumbler has about 230 million users. Tumblr is likely not worth twice what Pinterest is (the latter’s pin-board nature is better-suited to potential buyers and brides), but it is certainly worth a multiple or two over what Marissa Meyer paid for it two years ago.

Granted, there are very real differences between Pinterest and Tumblr’s services, strategies, and potential monetization methods. But from a technical perspective, Instagram demonstrates that there are very real – albeit gradual – ways to monetize on a single image platform, and especially one as well-suited to mobile as Tumblr. Thus, I think that Tumblr is very much an unrecognized resource in Yahoo’s portfolio. It’s not enormous like Alibaba, but it can function as a source of consistent cash and cool for the mothership – two things Yahoo sure can use after the spinoff.