Yahoo: Tumblr is not enough Finally, a Yahoo acquisition worth our attention. Two months ago the internet pioneer spent $30m on mobile app Summly to show the world it was refashioning itself to be young (recall the Summly founder was teenager), innovative, and attuned to a mobile world. But now Yahoo looks to have acquired a much more accomplished company, Tumblr, for more than $1bn in cash. Tumblr, launched in 2007 by then 20-year-old David Karp, allows users to create photo blogs. Dancing cats may be what it is best known for, but Tumblr does have 100m blogs and projects $100m of revenue in 2013. And the company fits exactly with what Yahoo boss Marissa Mayer seeks: user-generated content (cheaper than, say, Hulu having to negotiate with television producers), and resonance with younger internet users (keeping a Yahoo email account is akin to driving a Buick). But though the deal makes some sense, Yahoo remains stuck with a middling strategy. Even with Tumblr, Facebook and Google will remain light years ahead of Yahoo in market value and prestige. Yahoo may be better off focusing on its core advertising business, which missed expectations in the latest quarter. There is, however, a bigger deal worth doing: a reverse merger with Twitter. The microblogging site was recently valued at $10bn and may go public over the next year. A share-for-share combination with Yahoo allows Twitter to avoid the pitfalls of the initial public offering process (hello Facebook) but still become listed. Twitter's management will not be amenable to having Yahoo in charge but there is a way to solve that. Yahoo's current market cap is $29bn. Distributing its stake in Chinese ecommerce company Alibaba (worth $12.5bn after tax) and Yahoo Japan (worth $6.5bn after tax) as well as its $3bn in cash leaves an enterprise value of $7bn - less than the $10bn Twitter value. An exchange ratio can then be set to put Twitter in control. Yahoo management may not like ceding the helm so quickly but for shareholders this is a golden chance to join the tech A-List again.