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Skype Journal: Skype Starts to Build US Traction

October 18, 2006 04:24 PM

One of the "joys" of being a US-controlled public company is that SEC requires the breakout of International from domestic sales. So today's 3rd quarter report from eBay provides some information that allows us to look at Skype registrations coming from the U.S.

With over double the registrations from two quarters ago, it certainly demonstrates that the free SkypeOut within North America is probably helping to build some traction but Skype remains essentially a non-US business with over 84% of registrants outside the US. This is corroborated when you compare the % revenue increase with the % user increase; certainly some of the difference can be attributed to absence of revenue for SkypeOut calls within US/Canada.

The results are even more impressive when you consider there has been very limited marketing of Skype within North America - Phil has noticed some media ads in the Bay Area; there are some Skype ads on the eBay website.

These results also reveal some other interesting information:

  • Skype has grown to a $200MM annual business; however, it would be a stretch to expect them to hit $200MM in calendar 2006. That would require a $70MM quarter. What could drive that increase?
    • Royalties from the launch of new Skype devices such as the cordless phones shown at Fall VON and the Sony Mylo but it's still early in those products' life.
    • Increased SMS revenue, especially when driven by programs such as Skylook which will drive Skype Chat messages to your mobile phone via SMS if you are Away or Not Available.
  • Skype's overall revenue growth is slowing; however, it is still the quarter-to-quarter % revenue growth star for eBay where both auction (Marketplaces) and PayPal (Payments) revenue essentially stagnated (+2%, +3% respectively). On the registrant side, Marketplace accounts grew 5% while PayPal accounts grew by 8%.

Looking at the overall results, eBay has to be a nightmare for financial analysts to figure out and forecast. You have three (or more) totally different business models that have different financing and margin requirements. For instance, PayPal is essentially a financial transaction business that should be compared with, say, credit/debit card companies while Skype is a mix of high margin royalty and low margin communications transaction businesses. However, we don't get to see the margin breakdown by business unit; that would certainly provide a much better handle on how each of their business units is doing.

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Comments (4)

Its important to remember that a slowdown in Q2 and Q3 were entirely expected due to the highly seasonal nature of Skype. We will see growth materially increase this quarter back to around 40% Q/Q which would imply Q4 Revenue of about $70 million to reach total 2006 revenue of $200 million. I am confident Skype will reach this milestone.

Posted by: Arnie C at October 19, 2006 2:47 AM

If we take the number of 136 million reported and divide it by 24 hours we get 5.67 million online at any one time. That is very close to the number actually being reported online by the Skype RSS feed (average at any one time). So, the average daily usage for the typical Skype user is about an hour .

Now imagine will happen when those 136 million registered users increase their average daily online time to 2 hours.... or more. This will surely happen as mobile wireless networks become more widespread and as the various Skype features become more and more essential to users' daily tasks.

Posted by: aaytch at October 19, 2006 6:01 AM

Thanks for the numbers. The user numbers are very impressive, though I'm not sure if we really know what they represent.

The revenue growth is a bit slower than anticipated, but in the long-term it isn't of dire consequence yet. What is of consequence, it Skype's business model. I suppose much has to be considered with regards to the EBay mash-up, which is difficult to measure. Though, I don't think it's particularly beautiful.

Do we know how Skype will generate significant revenues in the future? Will advertising ever play into the picture? Will enterprise systems be a source of major revenue? Will Skype open up their network and protocols to enlarge their ecosystem? What will change to enhance the business model? These are the big questions.

Mobile phone royalites are going to be extremely competitive soon. The devices are limited in use today and in the forseeable future. Other IM's will soon compete with more familiar brand, albeit Skype is more advanced in features. Carriers will begin deploying their own UMA and dual-mode devices soon. Many factors to consider for Skype's financial future.

Posted by: Rick at October 19, 2006 7:28 AM

This is a test as I have had some reports that "Comments are not allowed". As a disciple of Shel Israel's and Robert Scoble's Naked Convertsations we want and appreciate your comments and feedback.

Update: In the Comments Preview I notice there are some (excellent) comments getting through.

If there continue to be any "Comments" access problems let us know and Phil (who manages the technical side of Skype Journal) will look into it.

Posted by: Jim Courtney at October 19, 2006 7:29 PM