The SKYpe Is Not Falling 12 comments
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I’ve written before about the amazing potential of one of the most maligned and misunderstood acquisitions in my recent memory. eBay’s (EBAY) purchase of Skype has been unanimously decried with such words as “irrational” and “foolish.”
With such negativity, one must assume Skype is a dying, unprofitable, debt laden business!
The Little Engine that Could
Malcom Gladwell is a widely read anthropologist with a popular series of books about the sociology of business and talent. One such book, The Tipping Point talks about those great paradigm shifts that disruptive technologies have created through history. Gladwell specifically targets that magical moment where an idea/product reaches a point of no return; where the positive feedback of user adoption creates a virtuous upward cycle that is unstoppable (hence the title of the book.) Is Skype reaching that point?
An interesting thing is happening to Skype user rates that seem to be hardly reported.
One often ignored metric that many analysts glance over is the concurrent user number. This number represents the total number of users that are actively on the Skype network. I argue this metric is one of the most important metrics when analyzing Skype; as it represents “real’ user adoption. Forget about user accounts registered (a user can register more then once or not even use it) – the real number you should be looking at is what number of users are actually logged in and USING Skype at the same time.
This graph shows the million milestones of concurrent users and the number of days it took to reach each consecutive million concurrent user rate.
On 1-26-2009 – Skype had a record 15,952,085 users. That’s almost an additional 1 million users since the last million milestone of 1-12-2009 – This is a record pace – only 16 days! At this trajectory – Skype is not only growing, but accelerating growth.
You can always track the current user log in rates in this helpful site (Source: Borderless Communicator).
Show Me The Money!
Ultimately, I do understand that user rates aren’t worth a bucket of beans if it doesn’t translate to revenue.
Skype Year End Revenues
- 2007 Revenue: 382 Million
- 2008 Revenue: 551 Million
This represents a healthy 44% Year over Year growth.
Assuming that the revenue declaration continues at its current pace and Skype grows revenues at 33% Year over Year for 2009, this would yield 2009 pro-forma operating income of $117 million and tax-adjusted pro-forma earnings of approximately $108 million. Skype's operating margin (excluding options) is expected to come closer to 16% in 2009. 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 than what eBay has valued Skype at 2.23 B.
I concede to Skype’s detractors that Skype revenue is slowing due to the natural effect of having free calls as more and more Skype users can talk free to fellow Skype users as more of their friends join. However, I’m not concerned about this as much as I am excited about what I believe to be the next paradigm shift that will ultimately take Skype to the moon.
VOIP’s time may finally come
I mentioned previously that Gladwell's book The Tipping Point was all about that moment where an idea or technology reaches critical mass where there is no point of return. Gladwell’s book discusses many instances where for whatever reason, a technology sometimes take a while to catch on. Take texting for example, mainstream in Asia for years before the first teenager got sore thumbs broadcasting his or her life on Twitter. There is now a plethora of VOIP offerings, the most high profile disappointing offering being Vonage (VG).
I argue that the wild card is cell phone apps. Skype already has an application on Google’s (GOOG) Android OS and is soon to complete one for the iPhone.
For those not too savvy about what this means, well it entails very cheap domestic / international calling regardless of how many minutes you have on a phone plan (as long as you have an internet connection like the iPhone). I’ve been using the former applet on my cell phone to call internationally, and I’ve found no easier way for me to call the world cheaply on my cell phone than Skype. I believe the future of mobile devices will slowly move from a ‘per minute’ model to a flat rate model that includes voice and data. Think of this shift as like the early days of the internet (i.e. AOL) where you had to dial up and pay “per minute.” Eventually the ‘per minute’ model changed to a monthly flat rate fee. Many of the wireless providers already provide ‘unlimited’ minutes for a flat fee. With iPhone monthly user fees nearing $100 – the spread between the cost of unlimited minutes and a variable monthly fee is getting thinner and thinner.
As users demand more ubiquitous internet access, to me it’s a no brainer that it’s a matter of time until a data connection becomes an “always on” proposition. This shift is further bolstered by the launch of “netbooks” (micro laptops that stress mobile internet connections). While unlimited minutes would ultimately depress Skype’s advantage for domestic calls (something that Skype was never used much for) – it would only amplify the value proposition for Skype’s main attraction: international communication. If my predictions for unlimited minutes never happens, Skype would benefit even more; by allowing users to circumvent their ‘minutes limit” for domestic calls and the international benefit still remains. I argue this demand will only grow as the world becomes more and more integrated and mobile devices continue to grow. Skype is right there ready to fill gaps from continued shift to mobile communications (on and off the desktop
A Diamond in the Rough
I believe Skype presents a tremendous opportunity, and has been so badly tarnished by its parent's (eBay’s) troubles that people are ready to throw eBay’s baby out with the bathwater. Whether eBay ultimately sells Skype or hangs on to it, it’s a great asset that is ignored by and large by the investing community and I hope this article brings to light the enormous opportunity of becoming the de facto standard of voice communications that Skype presents.
Disclosure: Long eBay, short Vonage.
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WTG Amazon on another amazing holiday kill!
However, eBay sellers are busy people, and they have lots more to do than chat all day with buyers. In addition, both buyers and sellers already had email and cell phone apps in place, so Skype was never a success for the original intended purpose.
That does not mean that it will not be successful, however, as other applications are/were developed and applied.
EBay sellers have difficulty in seeing other applications for the service, and since eBay has failed them miserably with their own businesses over the past several years, who can blame them for not seeing beyond their own situations.
I see Skype as not being applicable to eBay's core competencies, but then neither is their most recent purchase 'Bill Me Later'. (Talk about a poorly timed purchase!) If Skype has reached this critical mass of users as the author says here, then perhaps it is just ready to take off. Does that mean it is a good time to sell it? Or does that imply that it should be kept?
Given the present economic enviornment, perhaps keeping it until the ecomony turns up would be the prudent thing to do, even though it is not part of eBay's core competencies. Ultimately, I see Skype as being more valuable to someone else, than it is to eBay.
IMHO
eBay bought Skype with intent. That by offering it for free (for a while), it would catch on with the sellers and buyers. Once it had become an integral part of our eBay business's and success depended upon its use, then eBay would stick it to us royally with a massive monthly or per usage fee. Why? Because we would need it of course, or be at a disadvantage to others who would be using it.
If that xerox and snail of a site Kijiji would ever gather momentum, do you think that it would remain free? Heck no! As soon as we needed that traffic it will become quite expensive to use. What do you think they'd do with Craigslist if that pending suit enabled them to acquire and assimilated that company?
I can tell you...... "Free" would no longer exist on the internet. It would be a word for the history books. And if it wasn't completely removed from the human language and written words, "Free" would come with asterisk (*).
Open your eyes! eBay does nothing unless it benefits them. Period! What dream world are you living in? You by chance didn't drink an offering of kool-aid from an eBay employee, did you?
Besides the fact that Amazon beat the terd out of them AGAIN, they have abandoned and imposed such outrageous final value fees on the seller, that WalMart and Amazon are eventually going to put them out of business.
Why? Because WalMart has better deals. Amazon has a near flawless working model that they did not have to copy or imitate. They followed no one but themselves and since eBay has no direction, no "father-figure", they follow them and aspire to be them.
It's actually kind of scary if you think about it. Like a stalker in the night.
In closing, Skype was and is a massive blunder that the sellers have been paying for, and they have been for quite some time now. I for one will not miss eBay (or Skype) when they succumb to their own greed and wither away.
Pity you don't mention your sources, Skype Numerology and Skype Journal
:-(
seekingalpha.com/artic...
At the time eBay shares were around $17, now $12.
Many of us "whining sellers" tried to talk sense into his 'long eBay' thinking, but it fell on deaf ears.
I even invited Dan to try selling on eBay to get a better understanding of just what is going on there.
Dan's statement on Oct. 9:
"Skype needs to be sold and more jobs need to be cut before Wall Street props this dog up again."
According to his posts, made today, he now seems to think that eBay should retain Skype.
I guess so! The Mother company is losing it's arse to Amazon, eBay's mentor!
See Dan, this is how you post a critical comment without getting personal, and trying to belittle other posters.
Your MBA means nothing if you must stoop to such crass methods of
communication.
And I only have a High School education!
Hey Dan Buchanon - I mean Einstein,
A few corrections in you comments that you should have checked before you posted here and made yourself appear to be that of a 2 cheeked ham hock with a center orifice.
Einstein claims: "405 milion users is nearly the size of the US population."
Correction/Answer: The US population is approximately 303 million (and there is 2 "L''s in million).
Einstein claims: "Someday Skype will have a billion users..."
Correction/Answer: I don't doubt Skype could have 1 billion users if they played their cards right and sold it to one their "new" over-seas Diamond PowerSellers.
Einstein claims: "no one will remember how many Pez dispensers you sold back in 1999"
Correction/Answer: First, it was 1997. and second, you're not still believing that lie that was made up way back then, are you? You poor lost soul..... eBay made up that PEZ dispenser BS to interest the media. The first item sold on eBay was a broken laser pointer.
Einstein says: "Hey Wake Up! Hav e you seen the core fundamentals of eBay..."?
Correction/Answer: The "e" on have is connected. - and yes I have seen the core fundamentals on eBay - That's exactly why I sell on www.Bonanzle.com.
Einstein says: "Skype hit nearly $600 Million in sales. How much did you make?"
Answer: Had I sold on eBay this holiday season i would have made $10 - $20 dollars and paid eBay over $1000 - but those are just tentative figures.
Einstein says: "Just because your mum is annoyed you still live in her basement trying to sell her afghan's on an auction format that the world doesn't want, don't start crying fowl...."
Answer: The auction format? You must mean the successful business model eBay used to have.
If I was living in my Mum's basement (The "M" in Mum is capitalized by the way), she would never be annoyed. We are a family and that makes us strong. We enjoy being that way and it comes naturally. We don't have to be something we're not - like eBay trying to be a xerox of Amazon.
Nobody likes a copy-cat - always getting ahead by stealing the successful ideas of others and being something your not.
And if I was trying to sell her afghan's (and she does make beautiful afghans!) I would be selling them on www.Bonanzle.com. and I would be getting the price that they were worth and putting the money back where it belongs - in MY wallet - not eBay's bottomless pockets.