The Real Reason Yahoo Purchased Blink, and What That Means for YHOO Stock By Kyle Anderson

Yahoo Inc. (Nasdaq: YHOO) stock has slipped almost 16% in 2014, but the tech giant hopes that acquisitions like the one it made today will help YHOO regain momentum.

Mobile app Blink announced on its website last night (Tuesday) that the company is "joining" Yahoo, but no financial details of the deal have been announced. Yahoo has not commented on the acquisition yet.

Blink is a mobile-messaging app that allows users to send texts, pictures, and videos that self-destruct after an allotted period of time.

"We built Blink because we believe everyone should be free to show the same honesty and spontaneity in their online conversations as they can in person," the company wrote on its website.

The app was first launched in April 2013 and was made available for Android phones in February 2014. At the time, the company reported having 100,000 downloads, half of which were in the United States.

While the app is based on the same premise as the more famous Snapchat, it is far less popular. Snapchat doesn't release user number data, but it has said in recent Federal Trade Commission settlements that it handles 700 million messages each day. The market for self-destructing messaging apps is crowded and applications like Frankly, Confide, and Wickr all compete with Snapchat and Blink.

But the reason Yahoo acquired Blink wasn't for mobile users, or for self-destructing messages. In fact, Yahoo plans on shutting down the app within the next few weeks.

Here's the real reason why Yahoo acquired Blink...

Blink was created by Meh Labs, which is best known for developing the location-sharing app Kismet. It's also well-known because of its founders: ex-Google employees Kevin Stephens and Michelle Norgan.

Blink only has seven team members, but they are the prize Yahoo opened its wallet for.

You see, Yahoo has been on an acquisition spree since Marissa Mayer took over as chief executive officer of the company in July 2012, spending approximately $1.2 billion on more than 35 small acquisitions.

Some of Yahoo's most recent small acquisitions have included e-commerce analytics companies, an image-recognition company, and web browsers. But Yahoo doesn't always utilize the products of its acquisitions. Sometimes it shuts down the acquired company in order to bring the firm's developers into Yahoo.

That's exactly what Yahoo is doing with Blink.

The Blink acquisition fits into Yahoo's strategy as it attempts to retool its current services and introduce new ones. For instance, YHOO is currently retooling Flickr, while preparing to launch its new "Yahoo News Digest," "Yahoo Mail," and "Yahoo Weather." Adding a team of developers, especially ones experienced with mobile apps, will help Yahoo develop a stronger mobile presence.

That's because a move to mobile is a major key to Yahoo's success moving forward...

It's no secret that Yahoo wants to move its customer base to mobile devices, and acquisitions like Blink are designed to do just that. Yahoo has grown its mobile team from about 100 employees to more than 500 since Mayer took charge.

Yahoo mobile products bring in approximately 430 million monthly users, which is up 30% year over year. Still, the company pales in comparison to competitors like Facebook Inc. (Nasdaq: FB), which surpassed 1 billion mobile monthly users in Q1.

"We have a tremendous set of app developers and app designers. We want to build the best mobile apps in the industry," Mayer said at the Disrupt NY Conference last week. "We want to be the world's digital daily habit."

Mayer isn't the only one banking on Yahoo's mobile success moving forward. YHOO shareholders will also be watching the company's mobile growth and its acquisitions, as those factors will dictate the future of YHOO stock...

Yahoo stock gained more than 107% in 2013, but it has dropped nearly 16% in 2014. This year has been particularly unkind for many technology stocks, and the Nasdaq has dipped 1.3% since Jan. 1.

But there have been other troubling signs for Yahoo stock besides a sector sell-off.

In its first-quarter earnings report, Yahoo reported that revenue had slipped 1% year over year to $1.13 billion. Additionally, operating income fell 84% to $30 million in 2014 from $186 million the year before. Those factors have Money Morning's Capital Wave Strategist Shah Gilani questioning YHOO, even when monthly users are up 30%.

"Whatever Mayer has to do to wring profits out of Yahoo's slim bag of tricks, she had better be doing it. Monthly users will be important, most especially for their mobile component," Gilani said.

One of the few factors helping YHOO stock right now is its 24% stake in Alibaba. The Chinese e-commerce company is planning one of the largest U.S. IPOs of all time, and every time the company releases news or strong financial figures, YHOO stock receives a boost.

Through the Alibaba IPO, Yahoo will receive billions of dollars in cash to sell about half its stake in the Chinese e-commerce giant. If Mayer's current strategy is any indication, Yahoo will use that cash influx to make more acquisitions.

And the future success of YHOO stock will depend on if those acquisitions help Yahoo dominate the mobile world.

Do you think YHOO stock is a good buy now? Join the conversation on Twitter @moneymorning using #Yahoo.

Now: This 13th century tool can start making you serious money today...

Related Articles:

• The Wall Street Journal: Yahoo Buys 'Ephemeral' Messaging App Blink, Shuts It Down
• TechCrunch: Yahoo Acquires Self-Destructing Messaging App Blink, Which Will Soon Disappear
• TechCrunch: Yahoo Is Doubling Down on Mobile Again