Tumblr is a blogging and social networking site started in 2007 by David Karp and Margo Arment. Tumblr posted its first advertisements in May 2012 and subsequently earned $13 million in revenue. In May 2013, Yahoo (YHOO) acquired the company for $1.1 billion. The company was then acquired in June 2017 by Verizon (VZ) in a nearly $4.5 billion deal that merged Yahoo and AOL into a new Verizon-owned company called Oath. Although Tumblr reports it has more than 449 million blogs, with almost 35 million posts on Dec. 4, 2018 alone, the social media website has struggled to make money over the last year. 

On Dec. 3, Tumblr’s chief executive, Jeff D’Onofrio, announced that the blogging site would ban "adult content," defining the term as any image containing “real-life human genitals”, or “female-presenting nipples”. The decision came just one month after Apple removed the Tumblr application from its App Store after child pornography surfaced within the app. The timing of Tumblr's content ban suggests that parent company Verizon may look to monetize the company with a return to the App Store in the future.

Tumblr posted its first advertisements in May 2012 and subsequently earned $13 million in revenue. Here's how the social media website makes money.

How Does Tumblr Make Money?

Tumblr has four main sources of revenue: sponsored posts, sponsored apps, theme sales, and news feed licensing. Tumblr’s sponsored posts look identical to normal Tumblr posts, only they target users. A sneaker company might place an ad targeting young adults who follow blogs about fashion or style, for example. These advertisements, called "stream ads," appear on users’ dashboards and are more likely to be clicked on than a sideboard ad because they are integrated into user content. Stream ads are now popular on other social media websites, including Facebook (FB), Instagram, and Twitter (TWTR). Additional "sponsored posts" are also located on the website's sidebar in the style of traditional advertisements. 

Tumblr also displays advertisements called Tumblr Sponsored Apps. Similar to Sponsored Posts, Sponsored Apps target users based on their lifestyle choices. Instead of featuring products, however, the ads are for video games or other mobile applications. When the user clicks on an ad, they are directed to the Apple App Store or Google Play. Users can also buy and sell premium blog themes for their pages on the Tumblr marketplace, while developers can license the Tumblr news feed for their apps.

Is Tumblr Worth $1 Billion?

Even five years out, experts are still not sure what to make of Yahoo’s initial acquisition of Tumblr for $1 billion. Tumblr was always run independently from Yahoo and was rarely mentioned in their financial statements. So what is Tumblr worth now that it's owned by Verizon?

David Karp claimed that Tumblr would have $100 million in revenue in 2013, and Yahoo swore that it would exceed $100 million two years later in 2015. After missing both of those marks, market analysts have come to view Tumblr as an inconsequential business segment for Verizon and Oath. Tumblr has not released monthly active user counts since 2013, but according to a recent survey from research company Statista, approximately 43% of 18 to 24-year-olds use Tumblr at least once a month.

The Bottom Line

Tumblr’s main source of income is stream advertising, similar to how Facebook, Instagram, and Twitter make money. However, Tumblr’s users base is significantly smaller than any of its social media peers, making it less financially viable to base its business model on advertising alone. To compound the problem, users who do log in do so with an email address and are not required to provide the wealth of ad targeting information that Facebook requests from users. Although Tumblr does technically make money, the social media website has yet to show signs that its $1 billion price tag was worth it — then, or now.