Yahoo CEO Marissa Mayer's $1.1 billion deal for Tumblr may end up being a bigger bust than anyone thought.
The Internet company disclosed in an SEC filing that it is "reasonably possible" that the it could write down all of the remaining value of micro-blogging site Tumblr, which it acquired in 2013.
That would come after Yahoo took a $230 million goodwill-impairment charge for Tumblr for the fourth quarter of 2015. On the company's balance sheet, Tumblr represented $519 million of its remaining $808 million goodwill balance as of Dec. 31, 2015.
"Given the partial impairment recorded in our Tumblr reporting unit in 2015, it is reasonably possible that changes in judgments, assumptions and estimates we made in assessing the fair value of goodwill could cause us to consider some portion or all of the remaining goodwill of the Tumblr reporting unit to become impaired," Yahoo said in a 10-K filing Monday.
The disclosure comes with Yahoo's future in flux. The company is in the process of engaging with prospective buyers, reported to include Comcast, AT&T, Verizon and Time Inc., as it cuts back operations with a 15% reduction in workforce.
Yahoo has struggled to turn Tumblr, which has around 550 million monthly users, into a strong revenue-generating business. The goal was to bring a much-needed social network to Yahoo, whose core business of display advertising and search continues to deteriorate. Tumblr has launched advertising units and added video, to compete with services like Facebook's Instagram, but Yahoo said the unit could face future declines.
Drops in Tumblr's market share "could negatively impact the estimated future cash flows and discount rates used in the income approach to determine the fair value of the reporting unit," Yahoo said in the filing, which "could result in an impairment charge in the foreseeable future."
New York-based Tumblr, founded in 2007, had raised $125 million from investors including the Chernin Group, Spark Capital, Union Square Ventures, Sequoia Capital, Greylock Partners, Insight Venture Partners, CrunchFund and DFJ Growth.
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Marissa Mayer, former Yahoo CEO
Yahoo says it may write down all of Tumblr's value
Marissa Mayer, president and chief executive officer of Yahoo! Inc., speaks during the 2015 Fortune Global Forum in San Francisco, California, U.S., on Tuesday, Nov. 3, 2015. The forum gathers Global 500 CEO's and innovators, builders, and technologists from some of the most dynamic, emerging companies all over the world to facilitate relationship building at the highest levels. Photographer: David Paul Morris/Bloomberg via Getty Images
Marissa Mayer, president and chief executive officer at Yahoo! Inc., smiles during the 2015 Bloomberg Technology Conference in San Francisco, California, U.S., on Tuesday, June 16, 2015. Mayer said that the company's spinoff of its stake in Alibaba Group Holding Ltd. is proceeding as planned. Photographer: David Paul Morris/Bloomberg via Getty Images
NEW YORK, NY - MAY 04: Marissa Mayer, President and CEO of Yahoo attends 'China: Through The Looking Glass' Costume Institute Benefit Gala - Press Preview at Metropolitan Museum of Art on May 4, 2015 in New York City. (Photo by Bennett Raglin/WireImage)
NEW YORK, NY - APRIL 27: Yahoo CEO Marissa Mayer attends the 2015 Yahoo Digital Content NewFronts at Avery Fisher Hall on April 27, 2015 in New York City. (Photo by Cindy Ord/Getty Images for Yahoo)
Marissa Mayer, president and chief executive officer at Yahoo! Inc., smiles during a press conference at the Yahoo! Inc. Mobile Developer Conference in San Francisco, California, U.S., on Thursday, Feb. 19, 2015. Mayer unveiled a suite of development tools for mobile applications that integrate its own advertising services with features it acquired with analytics startup Flurry Inc. Photographer: David Paul Morris/Bloomberg via Getty Images
Marissa Mayer, chief executive officer of Yahoo! Inc., listens during a panel session on day four of the World Economic Forum (WEF) in Davos, Switzerland, on Saturday, Jan. 25, 2014. World leaders, influential executives, bankers and policy makers attend the 44th annual meeting of the World Economic Forum in Davos, the five day event runs from Jan. 22-25. Photographer: Jason Alden/Bloomberg via Getty Images
Yahoo CEO Marissa Mayer speaks during her keynote address at the 2014 International CES in Las Vegas, Nevada, January 7, 2014. AFP PHOTO / ROBYN BECK (Photo credit should read ROBYN BECK/AFP/Getty Images)
Marissa Mayer, president and chief executive officer of Yahoo! Inc., reacts during the DreamForce Conference in San Francisco, California, U.S., on Tuesday, Nov. 19, 2013. Yahoo boosted its stock-buyback plan by $5 billion, returning more cash to shareholders as Mayer seeks to revive growth at the largest U.S. Internet portal. Photographer: David Paul Morris/Bloomberg via Getty Images
Marissa Mayer, chief executive officer of Yahoo! Inc., smiles at the TechCrunch Disrupt SF 2013 conference in San Francisco, California, U.S., on Wednesday, Sept. 11, 2013. Yahoo! Mayer said the Web portal has surpassed 800 million active monthly users, a 20 percent increase since she joined the company in July 2012. Photographer: David Paul Morris/Bloomberg via Getty Images