Why is Yahoo paying $1.1 billion for a blogging platform most “grownups” have never heard of? The media has been busy postulating:
- The New York Times suggests Yahoo “is seeking to make up for years of missing out on the growing use of social networks.”
- “If Yahoo buys Tumblr, it’ll be a means of absorbing a throbbing, vibrant mass of teens and cool youths” writes VallyWag.
- “117 million unique users world-wide in March…up from around 58 million a year ago. The site is among a number of fast-growing startups,”* says the WSJ, citing statistics from comScore, a measurement firm.
- Trade publication AdAge adds that “the deal checks many boxes: social, mobile, content and buzzed-about native ads”
Is Tumblr really the “throbbing,” “fast-growing” and “social” solution to Yahoo’s languid business performance? Let’s take a look at some publicly available data to determine whether it supports these claims. This is not an in-depth financial analysis, but rather a broad look at some of the performance metrics related to audience and traffic, which are key drivers of revenue for web companies.
How cool is Tumblr’s audience?
If cool is defined by young users, Tumblr is at least halfway there: According to digital measurement firm Quantcast, 50% of Tumblr users are 24 and under. That’s a 20% point leg up on Yahoo, whose under-25 audience comprises less than 30% of total visitors. But while young, Tumblr may not be the “vibrant mass of teens” that VallyWag suggests: Quantcast says less than 20% of Tumblr users are under 18, a lower share than Facebook. Tumblr indexes highest among college-aged up to 35-year-old users. Think young adults who might be on MySpace were it not so passé.
Diversity might be considered another cool factor: Tumblr is more ethnically diverse than either Facebook or Yahoo, indexing especially strongly among Asian and Latino users. Just over 60% of its users are Caucasian — a reflection of where American will be rather than where we are now. And importantly, these users are more likely to be college educated than either Facebook or Yahoo users. But, likely a function of life stage, Tumblr users are low income: Over 60% of Tumblr households earn less than $50k/year, significantly lower than Facebook and Yahoo users. If there is value for advertisers in this audience, it may not be in the current buying power but instead future potential to shape society’s tastes.
Comparing Demographics: Tumblr, Yahoo and Facebook
(Quantcast, April 2013)
How does Tumblr perform?
Coolness itself is not enough to sustain a $1.1 billion valuation. What counts as cool is often ephemeral, especially among younger demographic cohorts who are changing their beliefs, attitudes, friends and brand affinities month-to-month. The platform has to perform for Yahoo. Let’s examine some metrics that may indicate how sustainable it will be.
Tumblr is growing, largely due to increased adoption outside the USA. International visitors increased 35% year over year, while US-based visitors declined 2% for a net gain of 19%, according to Quantcast, which measures Tumblr directly with java script tags. This is a far cry from the 100% growth implied the WSJ above. The reason: WSJ used comScore numbers, which are typically respected as authoritative. But due to a technicality* they are not in this case.
Despite the audience growth, Quantcast data suggests Tumblr’s page views are down over last year. So while more users are visiting the site, they appear to be less engaged, viewing fewer pages every time they come. It’s possible this decline is due to design changes which make navigation simpler, requiring fewer clicks. There is not enough data available to know the true driver of the page view deterioration.
Still other data points suggest engagement is strong. Visitor loyalty, as measured by average visits per person every month, has increased modestly YOY within the USA. This indicates there is a cohort of increasingly engaged enthusiasts, even while slightly fewer people are visiting. Although at 4.5 visits per month, Tumblr significantly lags behind Facebook’s repeat rate of 30+ visits per person. This may be an argument that Tumblr is a fundamentally different kind of social network, one that has a naturally lower level of user engagement.
Tumblr’s Key Analytics Vital Signs
(Quantcast, April 2013)
While traffic metrics give mixed signals, the financials are less open to interpretation: In 2012, Tumblr made just $13M. That translates to revenues of just $0.11 per monthly unique visitor. The top line is expected to be significantly better this year, about ten times higher than 2012, thanks to the introduction of new ad products. That puts early revenue per monthly visitor at $0.72 – but it’s still a far cry from Facebook’s estimated $6 annual revenue per monthly visitor. It does in theory, however, justify the valuation of $1 billion. Companies typically sell for about 10x revenue.
Estimating Tumblr’s Valuation
But a 10x valuation assumes sustainability for the long term. While Tumblr undeniably injects aging Yahoo with a “pulsing” mass of expressive young things,it remains to be seen how this translates into tangible business results that last.
*comScore started directly tagging Tumblr.com in April 2013. Tumblr.com had previously only been tracked by comScore’s panel data. Direct tagging generally inflates visitor counts, rendering year over year comparisons meaningless.