SUNNYVALE -- Yahoo's (YHOO) board of directors has reportedly approved the $1.1 billion purchase of the popular blogging site Tumblr, in what amounts to Yahoo CEO Marissa Mayer's boldest move yet in her efforts to revitalize the struggling Internet giant.
Six-year-old Tumblr has little revenue but a growing audience of young Internet users, which could help Yahoo in what its own executives have described as a quest to regain the company's "cool" factor.
The deal's reported cost would make it Yahoo's biggest purchase in a decade. And while the price raised some eyebrows, analysts said acquiring Tumblr could be a smart strategic move. Yahoo's stock, which closed Friday at $26.52, rose 1.5 percent in after-hours trading on Sunday when word of the deal came out.
"I think it's a good move for Yahoo. It adds something for them," said Karsten Weide, an Internet media expert for the IDC research firm. He said the deal should give Yahoo access to a new and younger audience, while potentially adding "social media" capabilities to other aspects of its business.
Tumblr members create their own blogs, where they can share essays, musings and photos. They also use the service to follow other Tumblr blogs and receive online updates on their latest posts.
A Yahoo spokeswoman would not comment, but the board's vote was reported first on Sunday by the All Things D technology blog and later confirmed by the Wall Street Journal and the New York Times, which cited unnamed sources familiar with the deal.
Terms of the deal reportedly provide for Tumblr founder and CEO David Karp to remain with the company for at least four years, while running Tumblr as a quasi-independent unit within Yahoo. That arrangement appears aimed at reassuring loyal Tumblr users that they won't see dramatic changes right away, in the same way that Facebook has preserved an arm's-length relationship with Instagram, the popular photo service it bought last year.
There was no word on whether Karp or his 175 employees, now based in New York, will relocate to Silicon Valley.
The $1.1 billion all-cash price is a premium for Tumblr, which was valued most recently at around $800 million, based on its latest round of venture capital funding last year. The company has raised a total of $175 million from investors to date.
Tumblr, which provides a free blogging platform for its estimated 117 million users, only recently began showing ads and reportedly had just $13 million in revenue last year. Analysts say it has potential to show more ads, and it could be an attractive addition to Yahoo's advertising platform, since many of Tumblr's users fall in the 18-to-29-year-old age group.
That's a group that advertisers covet, and Mayer appears to be hoping that some of Tumblr's popularity with young hipsters will also rub off on Yahoo, giving the parent company more cachet with consumers, investors and business partners.
"One of our challenges is we have had an aging demographic," Yahoo chief financial officer Ken Goldman recently told analysts at an investment conference, while describing a marketing plan aimed at "making ourselves cool, which we got away from for a couple of years."
Mayer has been working to re-energize Yahoo since she was recruited from her job as a Google (GOOG) executive last year. While Yahoo is still one of the world's most-visited Internet portals, it has been steadily losing advertising business to Google, Facebook and other sites in recent years.
Yahoo had also fallen behind its rivals by failing to capitalize on the social-media bandwagon, analysts say, and by having little presence on smartphones and tablets. Tumblr has a small but growing mobile audience.
But some analysts noted that a significant subset of Tumblr's audience uses the site to share pornography and other adult-oriented material that could make advertisers queasy. "They'll have to deal with that," Weide said of Yahoo, after noting that Tumblr's current "terms of service," which sets rules for what users can post, are much more liberal than Yahoo's.
Analysts also warn that Tumblr's future as an advertising platform is not yet clear, so its potential contribution to Yahoo remains to be seen.
Karp, a 26-year-old who never finished high school, is viewed by many in East Coast tech circles as a brilliant entrepreneur. But he has long said that he was more interested in building Tumblr's audience than in producing revenue, although Tumblr has experimented with allowing businesses to share commercial messages on the site.
There were no competing bids for Tumblr, according to news reports Sunday, despite recurring speculation that Facebook or Google might also be interested in buying the startup.
Mayer has already launched a handful of smaller acquisitions in her quest to turn Yahoo around, mostly involving startups that have developed online services for mobile devices. The biggest of these was the reported $30 million purchase of Summly, a news aggregation and summarization service started by British teenager Nick D'Aloisio.
But the Tumblr deal would be Yahoo's biggest since it paid $1.6 billion for Overture, an Internet search advertising service, back in 2003. Yahoo reported having $5.4 billion on hand at the end of March.
It's unclear when the deal will be officially announced, although some reports said Monday. Yahoo had already planned to hold a press event in New York on Monday afternoon, reportedly to show off new features for its Flickr photo-sharing site.
When asked about Tumblr on Sunday, a Yahoo spokeswoman would only say, "We don't comment on rumors or speculation." Tumblr representatives did not respond to requests for comment.
Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.
Yahoo has bought 10 startups since Marissa Mayer became CEO last year. All the deals were so small that the prices weren't disclosed, although Yahoo said in regulatory filings that the first two were for a combined $6 million and the next three cost a total of $10 million.
Oct. 25: Stamped (mobile recommendations)
Dec. 4: OnTheAir (video chat)
Jan. 22: Snip.it (content-sharing)
Feb. 12: Alike (mobile recommendations)
March 20: Jybe (social recommendations)
March 25: Summly (news summarization)
May 1: Astrid (to-do lists)
May 9: GoPollGo (social polling)
May 9: MileWise (travel rewards)
May 10: Loki Studios (mobile gaming)
Source: News accounts; SEC filings