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.
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.
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.
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, eBay has plenty of time to pull the IPO or find another buyer. Setting the IPO date does nothing more than set the clock for other parties to put in their bids.
EBay stock was up 4.4% in after-hours trading – it closed at $14.38.
eBay Inc. (Nasdaq: EBAY) today announced that it plans to separate Skype from the company, beginning with an initial public offering that is intended to be completed in the first half of 2010. Specific timing of the IPO will be based on market conditions. “Skype is a great stand-alone business with strong fundamentals and accelerating momentum,” said eBay Inc.’s President and CEO, John Donahoe. “But it’s clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential. This will give Skype the focus and resources required to continue its growth and effectively compete in online voice and video communications. In addition, separating Skype will allow eBay to focus entirely on our two core growth engines—e-commerce and online payments—and deliver long-term value to our stockholders.”
The decision to separate Skype is based on a timeline outlined by Donahoe when he became eBay’s CEO in April 2008. At the time, the company said it would spend a year evaluating Skype and its potential synergies within the eBay Inc. portfolio before making any decisions about Skype’s future. Donahoe also installed a new management team at Skype led by Josh Silverman, which has driven stronger momentum and improved performance. In 2008, Skype generated revenues of $551 million, up 44 percent from 2007, and segment margins of approximately 21 percent. Registered users reached 405 million by the end of 2008, up 47 percent from 2007, and user metrics improved significantly throughout the year. The company recently announced that it expects Skype to top $1 billion in revenue in 2011, nearly doubling 2008 revenues.
“Under the leadership of Josh Silverman and his management team, Skype has become a stronger business in the past year, and I expect it will be even stronger a year from now,” Donahoe said. “Skype has accelerating global user growth and strong fundamentals, diversified revenue streams and is competitively positioned in a large market. We expect Josh and his team to continue delivering results as we prepare Skype for an IPO.”
Most recently, the release of the Skype for iPhone application has generated a great response. More than one million people downloaded Skype for iPhone in the first 36 hours after it became available—and Skype immediately became the No. 1 downloaded free iPhone application in more than 40 markets, including the U.S., UK and Japan. In just over a week, downloads passed the two million mark, putting Skype on more than 6 percent of all iPhones and iPod Touch – and adding almost half a million new Skype users.
(Via @BreakingNews)
they are planning an IPO …. http://tinyurl.com/cgf29v
Good luck, founders!
http://twitter.com/Rohit_Shah
Good deal! I think the best solution for EBay and Skype, but especially for EBay, who keeps ahold of a property that became valuable.
Now, imagine what happens if Skype introduces IT’S OWN micro-payments service.
They have everything for that. They even have relatively good crypto installed on the client side. No ‘phishing’, no f…ng PayPal-style holds on other people’s money…
Just imagine it for a second.
no way. There are enough payment services online already. Who needs another one ?
And there were enough search engines before Google. Remember any of them?
Tweets related to this news here: http://bitly.com/IhBAj
Wow.
I think thats the smartest thing eBay could do with Skype… short of turning it into a full fledge social “media distribution” platform.
Why they haven’t leveraged the only successful non-browser software platform in recent history to do more awesome things beyond voice/text blows my mind.
There’s a billion awesome things that they could create — including leveraging their massive install base and p2p network for fantastic rich content distribution (think non crappy/social version of joost) and/or a rich social networked applications/ecosystem (think twitter/grandcentral/social-chat client).
I hope this move will revitalize the platform in a big way – and turn skype into a true social-telcom platform.
sounds good
Interesting change of events…I wonder how the founders will fare in all of this. Will they get in on some of the action too?
It certainly will be exciting to see the markets’ take-up to the IPO when it happens. Could be very telling…however, I don’t think they have anything to fear. Without seeing the financials, it seems to me that Skype is a solid business. There are endless possibilities with additional capital and such a huge installed user base.
Wish them all the luck, hope they do some more great stuff!
My view is that Ebay thought it was a VC fund and bought businesses they thought were cool without actually figuring out how they were going to incorporate them into their business model. It looks like they have since come to their senses and have exited both Stumble Upon and Skype. Although they have probably lost a billion dollars in the process. Hopefully this will act as a scary story Fortune 500 CEO can tell each other when thinking of moving to far away from the core business model.
Good idea. Skype is a great business but it clearly just doesn’t fit into eBay’s business. This way they can make it separate and still reap the benefits of owning part of it. I wonder if the founders will have any role in the IPOd company.
I have written an article in Dec 05 called “SkyBayPay” lining out ideas of creating synergies between the new communication ecommerce payment global leader.
http://www.mobi...g/article?id=82
It is a pity that eBay never really tried to fulfill this vision due to lack of imagination. Skype-powered secure p2p transactions and auctions with payments for physical and digital goods still is a super hot scenario that one day one company will follow. Sorry if it won’t be eBay.
This is a huge story because it’s the first web 2.0 IPO. I would definitely buy the stock because of its huge growth and market dominance. Next comes the facebook IPO. That will be even biger. Maybe skype will be valued at $7 billion and Facebook at $30 billion. http://iamned.com/blog/
Facebook, while great still has to justify its worth at $15 billion, let alone $30 billion (TechCrunch was reporting earlier that they were even willing to downgrade their worth in order to raise capital).
What I said over at AVC still applies http://www.avc....comment-8091560
What the economy needs is more IPOs to create jobs and generate money flowing through the system. Bring them on!!!
Skype really is a great business and sure will grow much more. But like Ebay I can not see how to fit into Ebay Business. Maybe is better spin off it.
Nice Angle Erik – on the founders thing I’m getting word that it wasn’t about Donahue but the fact that the founders had a snowball chance in hell to raise the money.
My Angle is that I think that it’s a big win for mgt. Skype deserves to run free with all that massive execution on the business as you pointed out they would kill it – plus it’s a big shot in the arm for the EU entrepreneurs. that market is buzzing with creativity but crappy financing market. Having a bellweather like skype executing on their own will help all in the EU
http://www.sili...om/ver2/?p=3996
yeah I was just reading about them selling stumbleUpon yesterday @ http://stockmar...b.wordpress.com
I guess TechCrunch got the news late.
or maybe it didn’t happen? techcrunch is never late
why did they sell it originally?
First Step..
Then PayPal should also be listed for IPO..
PayPal for Ebay will be like VMWare for EMC.
Should be interesting to see hows this works out for them
Before everyone gets all hot and bothered by JoltID, look around and notice that every other IM and VOIP service works fine without it.
The problem with spinning out PayPal is that it depends very substantially on Ebay (no matter what it tries to convince you otherwise).
Ala’ vaporware to hold off the competition…
…welcome to IPOware to hold off the short-sellers.
Looks like the likelyhood of the founders buying it back has decreased dramatically after this announcement.
Heck yes. This is the way to do it. I’d never give back this brand to those greedy founders. It’s a successful growing company for heaven’s sake, ten times larger than when they bought it for 3 billion. And making money!
Personally, this is good news relative to what would have been a fire sale, but the larger question is why couldn’t Skype become a full blown mobility platform like iPhone?
Looking at the parallels between Skype (eBay) and the iPhone Ecosystem (Apple), I see some symmetries, plenty of missed opportunities (to be sure), but still a downside that looks pretty good.
I can think of a number of companies that might want in on that action (why not Cisco?). It’s a real business with a massive installed base and a pretty satisfied customer base.
If you folded in personal and business listings, classifieds, marketplace functions and online payment you could you could build out a nice information services business on top of a solid communications services business.
As an aside, where I thought eBay was going when the acquisition was announced back in September, 2005 was as follows:
1. eBay looked at Web 2.0 emerging and saw all of these companies and upstarts jumping on the “syndicate, subscribe and open API” bandwagon.
2. They concluded that long term relevance “real estate” implied building out a proprietary runtime platform, with the goal of capturing more of a consumer’s daily mindshare (than their transactional setup is tuned to).
With Skype, they could build a client software platform play that had existing network effects, solid foundational proof of the efficacy of a minutes-based business model and session orientation, which offers up a lot of value add for Platform Extenders.
For what it’s worth, some time back I wrote an analysis of Skype’s acquisition by eBay. Check it out if interested:
A different spin on eBay-Skype (http://bit.ly/J8aM)
Cheers,
Mark
It sounds to me that eBay kinds of confesses that they got a huge ripoff a few years back. Going IPO on Skype seems the only feasible way to get their money back.
Should go for about the price of a Tijuana Hooker.
I think that this could become a very memorable IPO and a Google-esque growth stock in the coming years. This strikes me as one of the most important tech IPO opportunities of the last 5 years.
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