Yahoo Inc. remained tight-lipped Monday about its ongoing sale, but unexpectedly dished some dirt on itself, revealing to shareholders that it overpaid for the microblogging platform Tumblr.
Nestled among its weak second-quarter financial results were impairment charges — write-offs for intangible assets — totaling $482 million, which were chalked up to “the fair value of the Tumblr reporting unit [being] less than its carrying amount.”
Yahoo paid $1.1 billion for Tumblr in 2013. The impairment charges wipe more than 40% from the platform’s value.
Yahoo’s evaluation of the Tumblr platform was “long overdue,” said Erik Gordon, a professor of the Ross School of Business at the University of Michigan, who said companies are meant to regularly reassess the value of their intangible assets.
“Since the day the Tumblr deal was announced, people have said Yahoo paid too much for it,” Gordon said. “Now the company can no longer pretend that Tumblr is today worth $1.1 billion. It’s worth, in their view, a lot less, and it’s past time for them to face the facts.”
Tumblr has long been viewed as a dud for Yahoo because it has been slow to grow and even slower to make money. The company took a $230-million write-down on Tumblr earlier this year after the platform failed to meet is revenue goals.
Tumblr’s performance has paled in comparison to Instagram — a similarly priced social network that Facebook snapped up a year earlier. Instagram has experienced double-digit user growth every year since its acquisition.
While the Tumblr loss doesn’t hurt Yahoo’s credit rating or financial position, it’s another blow to Yahoo Chief Executive Marissa Mayer, who defended the $1.1-billion acquisition in 2013, and is now defending her leadership from activist shareholders critical of her turnaround strategies.
Earlier this year, Mayer detailed yet another strategy to turn around the ailing Internet company, of which Tumblr is a pillar.
During a call with investors, Mayer said Yahoo is continuing “to make solid progress with our 2016 plan.” But its numbers illustrated a company on the decline.
Yahoo reported $1.3 billion in revenue in the three months that ended June 30, up $65 million from a year earlier. Tumblr aside, the company lost an additional $8 million from operations. Its earnings per share fell to 9 cents from 16 cents a year earlier.
Mayer declined to comment on the company’s sale process, but it was all analysts focused on with Recode reporting that final bids are expected this week.
Ahead of the second-quarter earnings report, BCG analyst Colin W. Gillis said in a note to investors that “the key metrics are not going to be the woeful underperformance of [Yahoo’s] core business, or a discussion of whether GeoCities or Tumblr was a worse acquisition, or even [its mobile advertising strategy] MaVeNs — an acronym as successful as the current management team,” he said. “The focus is going to be on the separating out the minority value that is the core business via a sale.”
Gillis said any offer of about $5 billion or more “should be accepted by the Yahoo board.”
Former Yahoo interim Chief Executive Ross Levinsohn, who preceded Mayer, offered a more conservative estimate, telling CNBC on Monday that he expects the company to trade in the $3.5 billion to $4 billion range. Levinsohn was part of a group led by Bain Capital that expressed interest in acquiring Yahoo.
“The state [of Yahoo] is troubled, clearly,” Levinsohn said. “We can look back over the past four years and say the strategy did not pay off.”
Verizon and private equity fund TPG are among the main contenders to buy Yahoo.
Yahoo’s stock closed Monday at $37.95, up 23 cents, or 0.61%. It rose to $38 in after-hours trading.