Yahoo! Inc. (YHOO)’s Risky But Smart Decision

According to data from comScore, Yahoo! gets 16% of its traffic from mobile-only users. Meanwhile Facebook Inc (NASDAQ:FB) is much stronger in that area with 25% of its users being categorized as mobile only. Tumblr has the same percentage of mobile-only users as Facebook with 25%, so Yahoo! is gaining users in a key growth area. According to The Economist, Facebook was interested in acquiring Tumblr too, so the company didn´t just gain many valuable users, it also took them away from a critical competitor.

If Yahoo! wants to take it slow when it comes to monetizing the platform via advertising, justifying the purchase price won´t be easy in the middle term. However, the acquisition of YouTube by Google for $1.65 billion in 2006 sounded like a crazy price back them, and it turned out to be a great strategic move some years down the road.

These kinds of deals can´t be evaluated in terms of short-term financial impact. In any case, Yahoo! will still have more than $4 billion in balance sheet cash after paying for Tumblr. This is a big acquisition, but one that Yahoo! can afford.

Bottom line

Integrating Tumblr into Yahoo! Inc. (NASDAQ:YHOO) will be complex and risky, and there is no way to tell for sure if this will look like a smart move or a big mistake in the years to come. However, there’s one big question that needs to be answered: Is Yahoo! better off with an extra $1.1 billion on the balance sheet, or is the company better positioned with Tumblr instead?

Considering the company’s needs and the possibilities that Tumblr opens for Yahoo!, investors should feel good about this deal.

The article Yahoo!’s Risky but Smart Decision originally appeared on Fool.com and is written by Andrés Cardenal.

Andrés Cardenal owns shares of Google. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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