Tumblr Could have had a $3 billion buyout

Danielle Morrill describes how Tumblr could have sold for $3 billion instead of the $1.1 billion deal with Yahoo.

Tumblr claims 120 million+ daily impressions on Tumblr Radar, which equals 3.6 Billion+ monthly impressions. Assuming $10 – 20 RPM (revenue per thousand impressions), which is within the normal range for premium brand advertising, the total revenue opportunity for Q1 was $108 – 216 Million. Based on this calculation, at an annual run rate of $15 Million ($3.75 Million quarterly revenue).

Tumble is running low on cash on hand and there is a lack of trust in leadership to hit revenue milestones. These are likely having a negative impact on Tumblr’s negotiating position, which is probably contributing to what some consider a “lowball” offer.

Looking at our numbers from earlier, at $10 – 20 RPM and 3.6B dashboard impressions a month (and growing) the annual revenue potential for Tumblr ranges $432M – $1.44B.

Viewing the $1.1B offer from Yahoo! through this lens, it is 2.5 multiple of the low end of the expected revenue range. An acquisition at the high end of the range with a 2.5x multiplier would be $3.6B, and realistically if the company was crushing it on ad sales the multiple could be even higher.

In choosing to sell the company and hand Tumblr over to a professional management team with a track record for monetization through media properties, the board is implying that they do not feel putting more money into the company would enable the management team to achieve a better outcome in a reasonable amount of time. Investors who participated at the $800M valuation are probably welcoming the prospect of a $1.1B exit in cash – assuming some liquidation preferences were put in place they’ll get their customary 2x-3x late stage return, and the deal won’t negatively impact their respective fund’s overall IRR.

Selling now may also allow David Karp to remain in a leadership position at Yahoo! where he can continue his work to revolutionize advertising – maybe even leading Yahoo! to a more competitive position vs. Google for brand advertising and giving them a reason to drop the underperforming partnership with Microsoft in the long term. And if things don’t work out with Karp Yahoo! doesn’t seem to have any problem firing acquired founders who no longer fit with the company’s plans.

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.

Rumors of tens of thousands abandoning Tumblr

WordPress’ founder claims 72,000 blog posts imported from Tumblr. Normally we import 400-600 posts an hour from Tumblr,” he wrote. “Last hour it was over 72,000.” “Tumblr says it gets 75 million blog posts per day—so 72,000 are just a drop in the ironic blogging ocean,” reports All Things D.

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