IPO SHOULD EBAY USE TO TAKE SKYPE PUBLIC

IPO Should EBay Use To Take Skype Public



IPO should EBay use to take Skype public

Introduction

After earlier reports that Skype's founders were trying to buy back the company from eBay, the company has now released the news that it plans to spin off Skype as a separate company and file for an initial public offering. The IPO is intended to be completed in the first half of 2010. (Cihlar, Christopher 2006) As we reported earlier, eBay has been having trouble finding ways of using Skype across its other products (which CEO John Donahoe admits in a quote from the press release). eBay removed Skype co-founder and CEO Niklas Zennstrom in October 2007, reportedly due to frustration at the financial performance of Skype. Ebay also negotiated down the huge earn-out due to Skype stockholders and took a $936 million one-time loss around the transaction.

Explanation

Last year, Skype generated revenues of $551 million, up 44 % from 2007, and eBay recently announced that it expected its subsidiary to top $1 billion in revenue in 2011. Registered users reached 405 million by the end of 2008, up 47 percent from 2007. Skype now accounts for 8 percent of all international calls by one estimate, and that number is going to keep on growing.

The company also puts much emphasis on the achievements of the current management team, and also touts the fact that Skype for iPhone has been downloaded so many times (1 million times in the first 36 hours alone, to be exact), while I think its recent announcement regarding opening up for SIP, and thus for business users, was much more significant in my opinion.

With both this move and yesterday's announcement about StumbleUpon's founders buying back that company after having sold it to eBay for $75 million in 2007, it's obvious that eBay is doing what it's supposed to do in a recession (and arguably, should have done long before): return to its roots as a pure online marketplace with one strong, related company under its wings (PayPal).

The fact that it is opting for an IPO instead of considering a private sale back to the founders suggests that the founders were unable to raise the necessary cash or that there is so much bad blood between there that Donahue decided it isn't worth the reputation risk of selling it back and watching them succeed. Meanwhile, Skype's founders and eBay are embroiled in a legal dispute over Skype's license to certain peer-to-peer technologies which Skype's founders still control through a company called Joltid, and which form the technological foundation of Skype. (Cihlar, Christopher 2006)

For the most part, announcing plans now for an IPO that won't take place until 2010 is mostly for the benefit of Wall Street. eBay announces earnings next week, and these divestitures show that it serious about getting rid of distractions. But if Skype all of a sudden begins contributing meaningful profits to eBay or it cannot resolve its dispute with the founders, ...