The $3B+ Exit Tumblr Could Have Had | Hacker News Reader

The $3B+ Exit Tumblr Could Have Had

daniellemorrill.com

97 pointsdmor68 comments

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.

That CPM struck me as crazy high too and tumblr content is much closer to "social" than it is to premium media which would put the CPM a lot closer to $0.50 - 1.00 at scale.

Recent break out of CPM by country for FB :

http://www.rudibedy.com/blog/facebook-advertising-cpc-cpm-pe...

I should probably point out I am talking about Revenue per Impression, what the publisher earns. The advertiser may pay $.50 - $1 CPM to be shown on the impression, but it is possible for the publisher to show multiple ad units on the same impression. This analysis touches on the actual value of the dashboard today, but is ultimately focused on the expected value and potential revenue opportunity long term.

I thought I had caveated/explained that in the post but I can clarify it there too.

Fair point but 3 - 5x ad units @ $0.50 - 1 still don't add up to $10 - 20 . . .

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.

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.

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.

Will you both please stop?

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

Not a very professional way to respond, Danielle. Especially being the author of the article in question. Stop accusing people as trolls just because you disagree with them.

> 1. Advertising rates are far below the author's $10-20 CPM

I agree with your analysis, but don't confuse CPM with RPM. Publishers can run 1-20 ad units, so the price you pay as an advertiser (CPM) can be an order of magnitude different from what the publisher receives (RPM).

At any rate, I can't fault the author too much. It is an extremely well researched piece that I am glad I read. It would have been slightly better if he started with the $15M revenue run rate, and then backed into the business model.

Danielle Morrill is a she not a he.

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.

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.

And how does Yahoo! still have cash? Jesus

You realize Yahoo! is a profitable company, right?

> 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.

I think the diffs are Instagram hasn't attempted to monetize so their potential is unknown; while Tumblr already did and it doesn't look very bright.

Also, mobile-based photosharing was deemed a "major threat" to Facebook's existence and relevance, whereas Tumblr is a much less mobile-centric and is deemed more of an "asset acquisition" and doesn't carry the urgency that Instagram carried for FB.

Exactly this. Buying Instagram was a preventive measure, and it seemed to work out really really well for both parties involved.

Buying Tumblr though? It's not so much of a preventive measure. It would be more for the integration potential and userbase than anything else and I think most people are saying Tumblr lacks potential as a standalone service. However, if it could help augment the Yahoo brand then it could potentially be worth it for Yahoo.

I think there are multiple angles to look at, and we shouldn't focus too much on the price as much as the motivations behind such a deal and what the outcome could potentially be.

Perhaps Yahoo could build services around Tumblr? Or maybe they'd elect to integrate Tumblr into Yahoo itself. Or perhaps use it add to their portfolio of companies to strengthen the Yahoo brand. I could also see a Yahoo ecosystem consisting of a tag-team of Flickr, Tumblr, and their News aggregations. So the question remains; what is their strategic motivation for Tumblr?

On the flip side, we have other successful media conglomerate companies that let their media acquisitions remain semi-independent. Notably AOL and Advanced Publications/Condé Naste.

Yahoo made it crystal clear that they own Flickr, for example.

Do AOL or Advanced Publication make it clear they own Huffington Post, Tech Crunch, or Reddit? Not really. Sure, it's in black and white on their 'about' pages or via Wikipedia, but they generally had a hands-off approach. Huffpo and Reddit are still growing; Flickr not so much (except in some demographics or countries).

Maybe Yahoo will keep a hands off approach. That also helps create a firewall for Yahoo stockholders who might balk at Tumblr's questionable content.

I would argue that, in this case, long term irrelevance is a "major threat" to Yahoo!'s existence, and this is one of few ways to circumvent that. There's going to be the same seemingly irrational price pinned on this acquisition because it's a long term life or death situation.

Sure, but "Tumblr" is not an existential threat to Yahoo!. That kind of dynamic where you're such a pain in the ass to some big company that they have to buy you to maintain their status quo business as usual is one of the best ways to get acquired.

When you don't have that dynamic, Yahoo! doesn't have to buy Tumblr. Maybe they have to buy something but it doesn't have to be Tumblr and it doesn't have to be now, right this moment.

Irrelevance is the existential threat. At that point buying anything that people like and use becomes valid.

Lest we forget, the early days of Google monetization attempts were relatively poor - before AdSense came along.

Heck, other monetization attempts have been poor ever since too....soo....

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.

So is Tumblr. So we're left with poor comparisons.

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.

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.

I don't remember where I heard this, but it was something along the lines "it's better to have $0 revenue, than to have $100 revenue (or some other low number you want to use)". Because at $0, you could sell the company on potential, while at $100 you're making it seem like a very poor business.

If Tumblr wasn't making any money at all, maybe they could've sold it for $3 billion, but since they already have a monetization plan in place, and aren't making that much money with it, the expectations for monetization are a lot lower now, and the company is worth less.

I recall seeing this as well, and it's a sad indictment of SV management if it's true that companies estimate higher revenue potential for potential acquisitions with a pitch of "we've got pageviews you can always stick ads on" than "we've gradually started to monetise at a low CPM relying mainly on excess inventory ads from a third party platform due to a limited sales team, but CTRs are good and user attrition near nonexistent and our one premium brand advertiser is very happy, so how much more revenue do you think you'll make?"

It's like investing more in the "idea guy" than the good team with a developing product whose traction isn't stratospheric yet.

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

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.

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.

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...

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.

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.

Quick question: how did Yahoo monetize Flickr?

Quick answer: Freemium +

Quick rebuttal: Flickr barely makes any money.

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.

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

There are several sources that suggest Flickr revenues have been in excess of $100M per year for several years, possibly much more.

Quick answer: They didnt, instead they destroyed the product and the founders left (along with the rest of the talent attached to the product) in 2008

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

Tumblr seems to have toyed with this idea a bit in their paid/premium themes section: http://www.tumblr.com/themes/tagged/premium

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

I really don't understand this Internet math.

"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.

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

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.

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

You're off by one decimal place.

I imagine their infrastructure is quite a bill. Supporting that kind of traffic must be expensive - if you figure $1.5m a month, that's like $18m a year right there.

How can a company making 15 million in revenue alone be worth a billion? I wonder what the profits look like...

I also wonder what those 175 employees are actually doing?

I've seen plenty of business news articles where 'estimated' numbers or numbers from anonymous sources 'familiar with the company' were out by an order of magnitude.

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.

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.

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.

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.

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

I thought reader was shut down?

July 1

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.

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

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

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.

Danielle,

What do you reason is Tumblr's intrinsic value?

Reply on news.ycombinator.com