So as the article states below, eBay is thinking of an IPO for Skype because they could not find any takers for the price they wanted. Gee, no wonder. As the article states below, eBay, for no apparent reason, decided to pay $3.1B for Skype a few years ago. I don’t recall exactly, but at that time, the acquisition cost per user was between $35 and $50. Pretty high price considering the revenue generated per user was approximately ZERO!
eBay went on to say that Skype does not fit into its current two businesses — auctions and payment services. Interesting, as these were the same two businesses they had in 2005 when they bought Skype in the first place.
And now my favorite part. They say Skype is worth up to $4B, which would be a major reversal of a bad deal for ebay, which even with a $.14B write down, still has $1.7B on the books. Now, I don’t have an MBA, oh wait, yes I do, and nowhere did I see where a company that generates $1 per user ($500M with 400M users) would be worth $4B. I guess if all the revenue were profit, then I could see that a company with 100% contribution margin and profit of $0.5B per year would be worth that kind of money, but if that is the case, who is doing the accounting? Arthur Andersen?
But then again, what do I know? I did not work as a Master of the Universe at Lehman; nor did I bring down the entire economy with CDRs, so don’t take my word for it. Skype will probably be the IPO of the year in 2010.
SAN FRANCISCO — EBay announced plans on Tuesday to spin off Skype, its Internet calling division, in an initial public offering aimed at the first half of 2010.
EBay has been looking to sell Skype since the beginning of the year. But it could not find a bidder willing to pay a high enough price, despite interest from Skype’s founders, Niklas Zennstrom and Janus Friis, who led a group of private equity firms in making an offer for the rapidly growing calling service.
“Skype is a great stand-alone business with strong fundamentals and accelerating momentum,” said John Donahoe, eBay’s chief executive. He noted, however, that Skype was not a good fit with eBay’s two core businesses, its auction site and its PayPal online payments service.
“We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential,” Mr. Donahoe said.
EBay outbid Google and Yahoo in buying Skype in 2005 for $2.6 billion, on top of performance incentives that later lifted the final price to $3.1 billion. In 2007, Meg Whitman, then eBay’s chief executive, acknowledged that the company grossly overpaid by writing off $1.4 billion of the purchase price.
One problem for eBay in selling Skype is an escalating intellectual property dispute between eBay and the Skype founders. Joltid, a company founded by Mr. Zennstrom and Mr. Friis, retained ownership of the peer-to-peer technology used in Skype and licensed it back to eBay. Recently, Joltid said that eBay had breached that agreement, and eBay has asked a British court to intercede.
The matter is unlikely to be resolved by the end of the year, which could be dissuading potential buyers of Skype. It is also one reason eBay is planning an offering for Skype nearly a year from now. The company said market conditions would determine the specific timing.
“We will settle that before we do an I.P.O., and we are confident in our legal position on that litigation,” said Alan Marks, an eBay spokesman.
Analysts who follow eBay had expected it to sell Skype outright and were surprised by the announcement. They applauded eBay’s efforts to spin it off, though they noted that the public markets had not been very receptive to initial offerings. There have been no I.P.O.’s of venture-backed companies in the last two quarters, the first time such a drought has occurred, according to the National Venture Capital Association.
“EBay is communicating that they expect capital market conditions to be much better next year,” said Sandeep Aggarwal, an Internet research analyst at Collins Stewart.
In 2008, Skype generated revenue of $551 million from 405 million users. The company recently announced that it expected Skype to top $1 billion in revenue in 2011. Skype’s new application for the iPhone was downloaded two million times in its first week, and has become one of the most popular third-party applications on the device.
“You have a large, fast-growing, highly profitable enterprise. It probably would represent the most compelling technology story since VMware or Google,” said Paul Bard, head of research at Renaissance Capital, which estimates a Skype offering could raise as much as $4 billion, depending on what kind of ownership stake eBay retains. “It’s a growing biz, highly profitable, and it’s a leader in its market.”
.
