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Attention Yahoo & Alibaba Investors: Watch Tumblr

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Attention Yahoo & Alibaba Investors: Watch Tumblr

In a report published Monday, Bank of America analyst Justin Post argued that Tumblr could be "more relevant" for Yahoo! Inc. (NASDAQ: YHOO) post-Alibaba Group Holding Ltd (NYSE: BABA) spinoff.

Tumblr is a blogging service that allows bloggers to more easily follow others, and Yahoo is starting to ramp up contextual advertising in 2015, including app install ads. As such, Post projected Yahoo will improve its revenues generated by Tumblr to $95 million from $48 million in 2014. In 2016, "material growth" in Tumblr revenue could help stabilize Yahoo's display advertising growth rate.

Post noted that Yahoo's revenue potential from Tumblr won't have as big of an impact to Yahoo stock as Instagram and Whatsapp will have for Facebook Inc (NASDAQ: FB. Nevertheless, the analyst suggested that Tumblr could eventually generate $1 billion to $1.5 billion revenue potential, valuing the service at $1.4 billion to $3.2 billion, representing a "small, but possibly material" upside his $8 billion Yahoo core value estimate.

Related Link: Tumblr: The Trump Card For Yahoo In 2015

However, in the near-term, Alibaba's stock price remains "most relevant" for Yahoo's stock price as each 10 percent move in Alibaba stock translates to a 7 percent move in Yahoo stock.

Post maintained a Buy rating on shares of Yahoo with a price target lowered to $61 from a previous $66 to better reflect a lower valuation for Yahoo's Alibaba stake.

Latest Ratings for YHOO

DateFirmActionFromTo
Oct 2016DowngradesBuyHold
Oct 2016DowngradesBuyHold
Oct 2016MaintainsBuy

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