(Reuters) - Yahoo Inc will buy blogging service Tumblr for $1.1 billion cash, giving the Internet pioneer a much-needed social media platform to reach a younger generation of users and breathe new life into its ailing brand
The deal, announced on Monday, is a bold bet by Yahoo Chief Executive Marissa Mayer to revitalize the company by co-opting a Web property with strong visitor traffic but little revenue.
The combination of Yahoo and Tumblr creates an online powerhouse with roughly one billion users, which will draw in more advertisers and help Yahoo keep visitors on its properties for longer periods of time, Mayer told Reuters in an interview.
Analysts say Yahoo appeared to be overpaying for a business that has never posted a profit, makes a fraction of Yahoo's sales, and may not contribute significantly to revenue for years. But the company, rebuffed by the French government when it tried to pay $1 billion for video site Dailymotion earlier this year, had to do something to plug a hole in its social media efforts.
Yahoo made clear it was sensitive to concerns that it might damage Tumblr by making it less irreverent or more corporate.
"Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business," Yahoo said in a statement.
The deal will make Tumblr founder and CEO David Karp, 26, a multimillionaire.
Tumblr is one of the Web's most popular hubs of so-called user-generated content, drawing young people who use the platform to post pictures and text. It has more than 100 million blogs in its network, ranging from "White Men Wearing Google Glass" - a collection of photos poking fun at the early adopters of the wearable computing devices - to housing-focused "The Worst Room."
Though Yahoo remains one of the Web's most popular destinations, it has seen its revenue shrink in recent years as consumers and advertisers favor rivals such as Google Inc and Facebook Inc. The deal is expected to increase Yahoo's audience by 50 percent.
The acquisition, which will use up about a fifth of Yahoo's $5.4 billion in cash and marketable securities, is the largest by far since Mayer took the reins in July with the goal of reversing a long decline in Yahoo's business and Web traffic.