Yahoo Wants HuffPo Badly

Yahoo is clearly positioning itself to become a stronger player in the online content game, as evidenced by its recent acquisition of Associated Content. But we are hearing that the real prize they want is the Huffington Post. The two companies are currently in negotiations over a deep content partnership, according to sources close to the situation. There are also rumblings that Yahoo wants to buy the Huffington Post outright, but it may be too expensive. In any case, the Huffington Post seems to be more interested in doing a content deal than selling.

Yahoo needs high quality articles and videos, and the Huffington Post needs more traffic and pageviews. A content deal could conceivably include articles, videos, and advertising integrated across Yahoo News and other Yahoo properties. Who knows, maybe that deal could lead to something else. There are many ties between the two companies. Huffington Post CEO Eric Hippeau sits on Yahoo’s board, and president Greg Coleman used to be head of sales at Yahoo.

The Huffington Post is killing it right now. It is the biggest blog on the planet, with 26 million unique visitors worldwide in April, according to comScore. It is already bigger than The HuffPo has expanded well beyond politics to cover more than 20 different news categories, and it is embracing social networks as a way to drive pageviews through sharing. It is even experimenting with badges and other game mechanics to reward loyal readers and sharers.

If content is once again becoming king, online media companies need a lot of it and they need it to be good. An acquisition by Yahoo would accelerate the HuffPo’s growth, while at the same time give Yahoo a strong anchor for its content business. Sources with knowledge of the HuffPo’s thinking insist it is not for sale. But everything is for sale at the right price.

Buying the Huffington Post would not be cheap. When it last raised $25 million in December, 2008, that round gave the company a $125 million valuation. It would want multiples of that now. The company is on track to generate $60 million in revenues next year and $100 million in 2012. It still has cash in the bank, and could turn profitable by early next year. If you figure an acquisition multiple of 6X or 7X next year’s revenues, Yahoo would have to pay at least $360 million for HuffPo today, or much more a year from now. If Yahoo wants to focus on being a media company, there are worse things it could do than buy HuffPo. But is it really worth that much? A content deal lets Yahoo dip its toes in the water and find out.

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