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Originally published Friday, May 17, 2013 at 5:36 PM

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Yahoo reportedly considers deal for trendy Tumblr

Trendy Tumblr would be a real splurge for Yahoo. But it is hip with kids and on mobile devices, two things Yahoo desperately needs to become.

Los Angeles Times

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SAN FRANCISCO — Will Yahoo buy Tumblr?

That’s the $1 billion question du jour, courtesy of a report from tech blog All Things D.

The struggling Internet giant is reportedly in serious talks to buy the blogging service in a deal that could be worth as much as $1 billion.

Yahoo declined to comment. Tumblr could not be reached for comment.

Since former Google executive Marissa Mayer took over Yahoo last year, she has snapped up 10 small companies including Summly, which summarizes news stories, and Snip.it, a content-curation site. She has also sized up a lot of potential megadeals including Pinterest, DailyMotion and, yes, Tumblr.

All of these targets have something Yahoo does not: They are popular with the highly desirable 18-to-34-year-old set.

“There was a kid in my high school who used to buy the popular kids lunch so he could sit with them. Yahoo has become that kid,” TechCrunch’s Alexia Tsotsis wrote in response to the Tumblr reports.

Trendy Tumblr would be a real splurge for Yahoo. But it is hip with kids and on mobile devices, two things Yahoo desperately needs to become. An acquisition, if handled correctly — a big “if,” given Yahoo’s track record with acquisitions — could help Yahoo shed a few of its gray hairs.

Then again, said BGC Partners analyst Colin Gillis, if you are Yahoo in search of the elusive fountain of youth, “You are talking to everybody. You are considering everything.”

“You are doing the small acquisitions because those are easy, and you probably do a couple of the big ones because you need to, but you want to do those wisely,” Gillis said.

It’s a strategy that Mayer would have honed at Google, which tends to buy a lot of tiny startups and only on occasion buys a YouTube, AdMob, DoubleClick or, the granddaddy of them all, Motorola Mobility.

Mayer has cash on hand for at least one megadeal — perhaps more if the Alibaba initial public stock offering plumps up Yahoo’s balance sheet. Yahoo has an $830 million stake in the Chinese e-commerce company.

So is Tumblr the one?

“I would have to look at the books,” Gillis said. “It depends on the price.”

Tumblr hosts 90 million blogs that generate 89 million new posts each day.

Yet CEO David Karp has famously struggled to turn all those eyeballs into dollar signs. Tumblr reportedly had just $13 million in revenue in 2012.

Combine that with Yahoo’s abysmal track record of getting value out of acquisitions, and Gillis says he smells “GeoCities 2.”

Yahoo bought GeoCities in January 1999 at the height of the dot-com bubble for nearly $3.6 billion in stock. Long story short, the service is now available only in Japan.

Yahoo also has a history of being used as a pawn to drum up a counteroffer from another company, Gillis pointed out. Already rumors are circulating that everyone from Facebook to Microsoft are now kicking Tumblr’s tires.

“A lot of people might try to get her to bid and use that bid to open up the purse strings of Facebook or Google, someone else they really do want to be a part of,” Gillis said.

As for the chances of the very square Yahoo being able to buy its way to being cool?

“A billion-dollar exit would certainly make the founders of Tumblr cool,” Gillis said.

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