Can a Tumblr acquisition make Yahoo! cool again?

Things are stirring in the house of Yahoo! According to multiple sources, the Silicon Valley veteran is in talks to buy popular social blogging platform Tumblr for a staggering US$1-billion.

Yahoo! CFO Ken Goldman, is cited in AllthingsD as expressing the need for the company to be “cool again”. Goldman was speaking at JP Morgan’s Global Technology conference earlier this week. The CFO was very explicit about the company’s shortcomings and how to fix it, reports AllthingsD.

“One of our challenges is we have had an aging demographic. Part of it is going to be just visibility again in making ourselves cool, which we got away from for a couple of years.”

It seems the company has discovered the best way to do that: buying Tumblr. Tumblr is easily one of the sexiest and coolest internet companies out there, covering the youth bracket that Yahoo is chasing.

Sources close the matter say that the two companies are in serious talks about a possible acquisition or strategic alliance, though nothing has been finalised. AdWeek is reporting that the deal could go as high as US$1-billion.

The New York-based company is currently valued at US$800-million. Since its 2006 inception, Tumblr has raised funding from several investors including Union Square Ventures, Spark Capital, and Sequoia Capital. In 2011, the company raised US$85-million in a round of funding led by Greylock Partners and Insight Venture Partners.

The site currently has more than 102.6-million blogs and more than 44.6-billion total posts regenerated by its growing user base. In an interview with Bloomberg West, the site’s founder David Karp said that the company made the bulk of its money through advertising.

The company reported US$13-million in revenue in 2012, with the hope of making US$100 million in 2013 as more advertisers get on board. Currently Tumblr has taken US$125-million in funding from its backers, with US$25-million to fund operations last year. Its revenue may be modest, what it lacks in extra zeros it makes up for in tech influence. Tumblr has managed to set itself as a key player in the tech fabric over the past few years.

It makes sense that Yahoo! would be interested in the company. CEO Marissa Mayer seems to have had eyes on the service for a while, even back in her Google days. Since taking the helm at Yahoo! Mayer has expressed a strong interest in buying up small innovative tech startups to help remold the company’s image. Bringing Tumblr into the fold could go a long way in ensuring Yahoo!’s resurgence into the tech game as formidable power player.