Considering that Yahoo payed over 5 billion for broadcast.com and over 3 billion for tumblr, this seems like a bargain for Yahoo.
Yahoo! Inc.’s (NASDAQ: YHOO) $1.1 billion cash buyout of Tumblr already has been criticized because of the large sum involved compared to Tumblr’s extremely modest revenue, estimated at $13 million last year. However, the decision’s brilliance arises from Yahoo!’s needs to add audience and a means to tap a new online market that numbers in the tens of millions. M&A deals should be measured by their ability to transform the buyer as much as by an immediate, narrow financial effect.
Analysts have compared the Tumblr decision in relationship to AOL Inc.’s (NYSE: AOL) buyout of The Huffington Post and Google Inc.’s (NASDAQ: GOOG) purchase of YouTube. The three deals actually have little in common. AOL paid $315 million two years ago, a reasonable multiple give Huffington’s $60 million in sales the year before. In the process, AOL transformed the quality of its editorial content…
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