The Skype's the Limit 29 comments
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eBay's (EBAY) acquisition of Skype in 2005 has been one of the many controversial moves eBay has been recently making. The purchase was originally marketed as the missing piece to create the holy trinity in eBay's hallowed e-commerce halls (along with eBay's auction sites and PayPal.) The thinking was that Skype would accelerate transactions among strangers as they communicated to each other more efficiently. eBay later found out that people are more interested in buying/selling quickly then chatting it up about those transactions.
Consequently, Skype did not live up to all the hype, and eBay has been paying for the acquisition ever since. So the question remains, eBay goofed – but how bad? How bad is Skype? I think if you look at their performance; you'll find surprisingly that Skype is not bad at all…
What did eBay pay for Skype?
First things first, how much did eBay exactly pay for Skype? I've noticed a lot of numbers floating around the web anywhere between 2.6 to 4.1 Billion. The variance stems from the tiered payment structure that was negotiated to be based on Skype's future performance. EBay had agreed to initially acquire Skype for $1.3 billion in cash and $1.3 billion in stock and would pay up to $1.5 billion more if Skype met financial targets by 2008 and 2009. eBay ended up paying 530 million out of the 1.5 billion performance portion to settle the transaction. So the grand total paid was 3.13 Billion dollars. If that wasn't complicated enough, eBay at the same time took a 900 Million dollar charge basically valuing Skype at 2.23 B (out of the 3.13 B they paid).
How is Skype doing anyway?
So investors agree eBay overpaid and eBay agrees with them. So, just how bad is Skype? Well, let me breakdown revenue numbers and current growth rates and you be judge. Revenue in the past 4 quarters came in at 521 million vs. 332 million for the previous 4 quarters giving us a growth rate of 56.9 % Y/Y, a growth rate that currently eclipses Amazon (AMZN), Yahoo (YHOO) and yes…even Google (GOOG).
But what good is growth if that growth is drastically slowing down? Amazingly, growth is not slowing down – in fact it's accelerating! Just this week Skype logged its fastest growth rate of user activity in its history – Skype logged an additional one million more concurrent users (a good measure of usage) in just 35 days.
So here we are; we have a company growing 50+ percent year over year, is currently accelerating growth and most importantly profitable. It sounds to me like we got the bases loaded for investors.
Skype had Q3 2008 revenue of $143 million and is on track to reach 2008 revenue of $570 million. Let's be conservative and assume the current economic crisis hits revenue growth and causes it decelerate almost half to 30% next year, we can still expect somewhere around $741 million in 2009 revenue.
Skype's operating margin (excluding options) is expected to come closer to 16% in 2009. This would yield 2009 pro-forma operating income of $119 million and tax-adjusted pro-forma earnings of approximately $107 million. Again, just being very conservative and a forward P/E multiple of 30x (again restricting PEG to 1.0x) we get a current valuation of roughly $3.2 billion. 3.2 Billion Is more than the 3.13 Billion dollars that eBay paid and definitely more then what eBay has valued Skype at 2.23 B
Sometimes it's okay to be a third wheel.
I understand Skype does not have any of the promised synergies with eBay. As a standalone company however – it would definitely be valued much more then the unloved step child it is now. Skype should be a net positive toward eBay, and at worse, have a neutral effect on investor sentiment. Being a third wheel can be okay as long as that wheel is carrying its own weight…say, like on a tricycle.
Disclosure: Long EBAY
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This article has 29 comments:
but eBay is the main wheel, the big one up front with the pedals, and that one is wobbly due to the idiot controlling the pedals and steering it,
John Donahoe.
And as we know, he never looks back to see where eBay has been,
he just stares ahead for a ditch to crash eBay into..... repeatedly!
about the size of the Grand Canyon, lol.
I just got a great deal on a laptop on eBay for my Dad, check everywhere for the best deal I could find including Amazon, but found what I wanted on eBay. Just received it and could not be happier with it, I'm customizing it for him now.
I love Skype, I have Pro account with a Skype-In # and VM use it as my land line at home with a PC-less Skype phone. A great deal, can call all I want for one flat rate for the year. I call long distance to family on the east coast, my calls her family abroad, quality is excellent. Skype will only benefit with the economy in the shape it's in. I thing eBay will resist pressure to sell Skype, they know they have a diamond in the rough.
Noteably, the collectibles, antiques and vintage items sellers have been busy on Etsy's new vintage venue that they have offered to the ebay immigrants who have just arrived, ready to go to work selling again...the site is just recently booming with attention and page visits, as can be seen in this site comparison chart. siteanalytics.compete....
It does not appear to be hurting Etsy's site that the economy is weak right now. Lots of items being listed and lots of seller support there! Very Impressive! Go Etsy!
Oh well, it's too late now anyway. I was a 10+ year Ebayer, had fun buying and selling on Ebay over the years, then this loser came on board and started making all of these hideously insane changes. I bought ebay stock when it first went on the stock exchange, sold some at a profit, bought and sold more over the years. I saw where Ebay was headed months ago and sold my remaining shares when I still had a profit. Best decision I made this year.
As for Ebay.. I'll be happy to see its continued and fatal demise.
WRONG!!! We the sellers have been paying for this blunder ever since! I felt this statement needed to be corrected.
Oh, and thanks ebay+++,
Your checks is waiting for you at the front desk.
-Love John
As the article states Skype is just fine, so how are eBay Sellers paying for it? Fail to understand that.
My understanding of the changes were that they gave an advantage to "Good" sellers and made it a disadvantage to "Bad" sellers. What's wrong with that, besides the fact it pisses off the "Bad" ones? If your one of the "Bad" sellers, find another place to sell, don't blame eBay for your faults. eBay is looking out for itself, how is that bad? I don't think eBay is crumbling either, I've heard that for 2 years now, sure the Stock price sucks right now, but this is a powerfully strong company. I mean they only made 500 million in Q3. Paypal and Skype are growing in leaps and bounds. They also dominate Classifieds outside of the US, and own 25% of Craigslist for in the US.
Bash a hard as you want but this company is not about to topple, that just wishful thinking from bitter "Bad" sellers. I actually think the continued bashing just shows that there is nothing quite like eBay anywhere else. Why else would you respond so passionately to eBay news? Can't wait to hear the answers ;)
It's a GOOD eBay seller for many years, then got kicked in the gut by Donahoe thing.......you wouldn't understand.
eBay stock went public in 1998 at $18 per share, 10 years later it's $15 a share.
I fail to see your optimism for the future of eBay, and I sure as hell don't understand your antagonizing tone towards people that have actually sold on eBay for many years.
Do you really think that "bad sellers" would give a hang, one way or the other?
Donahoe opened the door much wider for "bad buyers".... it's that simple.
Sorry if you've lost money on eBay stock, but you are a tiny voice trying to prop it back up.
But I like eBay, buy stuff off the site and use Skype, happy with both. Bottom line.
Let's call it a grass-roots effort ;)
I bought as much as I sold, over my 11 years of membership, so I know both sides of the issues.
I do own stocks, not eBay, and yes I'm hurting too!
Another one-time-posting wonder pops up. It's a rock, all right. And rocks sink.
"Buying" means nothing, dude. You're not gettin' it!
Buying(and value) is everything. Anyone who focuses on that will win at the end of the day. Note that the customer in a commerce transaction is the buyer. And customer is always right.
Bashing is just childish. If you dont like it.. move on. Its a big world out there. Do something constructive.
I decided to have a little fun and googled "ebay rocks" and found 13,400 hits.
Then tried "eBay sucks" and found 27,500 hits.
Interpretation is up to you.
Bashing the bashers is just childish, and not constructive.
Try selling on eBay, then give us a report on how great it is doing.
I was a Powerseller on ebay with 100% feedback. I left. It was my own choice and carefully thought out over a period of time.
I decided I did not wish to continue supporting such a greedy, devious entity as ebay that is so completely lacking in integrity and character.
I sell elsewhere and do so with much less stress, where there is constancy and character and real customer service. Where if a problem arises with a seller I have a fair shake with winning.
I speak, by the way, of more than one site.
ebay opened a Pandora's box when they rattled it so hard. Between Google, Youtube, and MySpace, among so many others, there is now vast opportunities for selling elsewhere. And buying.
It's a Pandora's box they'll never be able to close successfully, no matter how hard they squeak.
This thread is dead.
eBay bashers are waiting for the next eBay related blog to bash.
See you there!
Best regards,
one of the flies
But as you said:
"I think eBay will be fine, with Paypal and Skype they'll be great"
At least Bob C is rational.
With Ebay's share price in bargain basement area.,Im a little surprised the new ceo isnt doing everything he can to buy back shares.(buy it now)Their conference calls are entertaining,almost funny.
Why not sell Skype and put the money to work in the open mkt and support the share price?They could even auction it!