September 26, 2011 at 14:51 PM EDT
Tumblr Raises $85M Despite Skinny Revenues
Online company's growth story is enough to entice investors willing to bet on future revenues down the road.

TumblrIn today’s volatile markets, investors even have a tough time buying solid companies like Proctor & Gamble (NYSE:PG), Coca-Cola (NYSE:KO) and IBM (NYSE:IBM). Isn’t the world falling into a recession?

Well, this kind of pessimism means nothing to venture capitalists. Not even the terrible IPOs of Pandora (NYSE:P) and Demand Media (NYSE:DMD) have had an effect.

Hey, there always is something new in Techland. Just take a look at Tumblr. This week, the company raised a cool $85 million in financing. Investors included Greylock Partners, Insight Venture Partners, The Chernin Group, Capital, Union Square Ventures and Sequoia Capital. Even Virgin’s Sir Richard Branson wrote a check.

Why all the excitement? Basically, Tumblr is a next-generation Twitter service. It makes it much easier to share things like photos, links and videos. You also have full power of customizing the theme of your blog, such as with funky colors and graphics.

And Tumblr is growing like a weed — despite having just about 50 employees. For example, the site now has more than 30 million blogs that generate about 13 billion page views per month, which is up from 2 billion per month at the start of the year. A big part of the growth story has been with mobile use — especially on Apple’s (NASDAQ:AAPL) iPhone — as well as penetration into foreign markets. Tumblr also has been extremely popular in the fashion industry.

Yet there is a sticking point: revenues. For the most part, they are fairly minimal. Of course, Tumblr’s investors think the company eventually will have numerous various ways to monetize things. This has been the case with other standout web services like Facebook and YouTube. Then again, there are other examples where this theory turned out to be a bust, such as with ICQ.

But VCs have no choice but to make big bets. And so far, Tumblr has the kind of growth ramp that attracts mega-bucks — regardless of the market environment.

Tom Taulli is the author of “All About Short Selling” and “All About Commodities.” You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.


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