The deal, expected to be announced on Monday, would be the largest acquisition of a social networking company in years, surpassing Facebook’s $1 billion purchase of Instagram last year.
This is a bold move for the company as it tries to make a move into social media and revamp its image as an industry giant in its own right. The move is seen to target young people. Tumblr has over 108 million blogs, with majority of users being the young.
The deal is the seventh that the company has made since Marissa Mayer took over the reins last summer and it’s so far the biggest. So the biggest question on everyone’s mind is can they make money out of Tumblr?
In her short tenure as chief executive, Mayer has bought a string of tiny startups most of them aimed at buying engineering talent that could help revamp Yahoo’s core products, like mail, finance and sports, as well as build out new mobile services. She has also had conversations with a number of other big-ticket targets, like Foursquare, a mobile app that lets users find nearby restaurants, stores and bars, and Hulu, the video streaming service, according to people with knowledge of those discussions who were not authorized to speak publicly.
Founded six years ago, Tumblr has attracted a loyal following and raised millions from big-name investors. The startup reaches 44 million people in the U.S. and 134 million around the world, according to Quantcast. Still, it has not proved that it can be profitable, nor that it can succeed on mobile devices, which are becoming the gateway to the Internet.
Karp, Tumblr’s chief executive, is expected to get nearly $250 million from the deal. Spark Capital, the Boston-based venture firm, has been involved in five investment rounds of Tumblr’s financing and is expected to make tens of millions of dollars from the deal.