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Yahoo just admitted it badly overpaid for Tumblr

David Karp, third from right, Founder and CEO of Tumblr, reacts as confetti flies during the opening bell at Nasdaq, Thursday, July 11, 2013 in New York. Derek Gottfrid, Tumblr vice president, raises his fist. Yahoo acquired the online blogging forum for $1.1 billion in June. Tumblr will remain independently operated and Karp will stay CEO. (AP Photo/Mark Lennihan)
AP Photo/Mark Lennihan
Actually, we got our math wrong.
By Alice Truong
Published Last updated This article is more than 2 years old.

Yahoo’s fourth quarter results are out, and lumped into them is a whopping $4.5 billion write down.

In the holiday quarter, Yahoo generated $1.27 billion in revenue, a 1.6% increase from the year-ago period, and recorded a $4.44 billion net loss. The Sunnyvale, California, company reported $4.4 billion in losses for the full year, meaning it would have turned a very modest profit for the year without the charge.

The culprit for these dismal results is a $4.46 billion goodwill impairment charge. Yahoo explains in a footnote:

We concluded that the carrying value of our U.S. & Canada, Europe, Latin America and Tumblr reporting units exceeded their respective estimated fair values. The goodwill impairment resulted from a combination of factors, including decreases in our market capitalization, projected operating results and estimated future cash flows.

In essence, Yahoo is admitting that these units have been hugely overvalued. In a call with investors, chief financial officer Ken Goldman revealed that Yahoo wrote down Tumblr by $230 million. The biggest charge is for its North American unit at $3.7 billion.

In 2013, CEO Marissa Mayer made headlines when she paid $1 billion to acquire Tumblr. Reporting on the news then, Quartz’s Zachary Seward explained how Yahoo arrived at the lofty valuation:

Valuing a fast-growing startup like Tumblr, which had little revenue when it was acquired, can be particularly difficult without a hefty helping of goodwill. The value of Tumblr’s tangible and intangible assets amounted to just $353 million, according to Yahoo’s accounting. Tumblr also had $114 million in liabilities.

Though the acquisition signaled to investors Yahoo’s embrace of hip, new technologies, that hasn’t translated to the bottom line. Last February, Marissa Mayer projected $100 million in Tumblr revenue for 2015, but Goldman said “the business did not deliver” on its revenue goal.

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