eBay buys back Skype; UPDATE: Skype to lead eBay

"We missed them. We haven't been as cool, or as profitable, since they left" said an eBay spokesman of Skype Ltd. "Since we own a swap meet, a mall, an ad network, a ticket agency, a car dealership, and a bank, a phone company should fit right in. It's about harmony, not about synergy."

UPDATE: 0630 Pacific, 1 April 2010. Conf call.

Skype management taking over eBay, and their plans for the first 30 days.

Business integration

• eBay stock listed on London stock exchange, denominated in euros
• Engineering moves to Estonia, headquarters moves to London

Harmony strategy

• eBay.com features auctions with emoticons
• Skype sports new emoticons: (sold), (sniped), (Elvis bobblehead), (powerseller)
• All eBay users can use eBay ID to automatically log into Skype
• eBay now available in 50 languages and 104 countries
• Every eBay seller and category now has own infomercial channel
• Skype acquires OnState and furnishes free Skype call center to every eBay and Half seller
• Skype acquires Pamela so buyers can fax bids and get fax auction results
• Webcams and headphones category now at top of all search results
• All phone numbers to have Skype links
• eBay apps now preinstalled on Samsung, Panasonic and LG smart TVs, Verizon smartphones
• PayPal opens in Russia, India, China
• eBay Motors installs Skype with every car
• Skype for Windows 5 adds tab showing contacts sorted by eBay activity and trust rank; search window lets you find things to buy

tags: skype, #aprilfools, ebay

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
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Moving out: the post-eBay checklist

1. Lose the eBay toolbar on Skype installation. Are users asking for it? 

2. Was there ever "an eBay company" text on Skype.com? Find it. Kill it.

3. Turn in your eBay badges.

4. Move out of Skype Inn in San Jose. Leave the eBay campus behind.

Tell us where you land so we can send a housewarming gift.

tags: skype, eBay, $eBay

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
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Skype sold, deal done. No surprises.

Skype blog post ("Great news – we’ve closed the deal with the new investors.") and news release. Investor group pays Skype $1.9 billion in cash, $125 million note for 70% of Skype. eBay buys a $50 million note from them. Investors include Silver Lake, Canada Pension Plan Investment Board, Andreessen Horowitz Fund, and Joltid Limited. Skype now owns Joltid's peer-to-peer intellectual property, free and clear.

All the talent dedicated to replacing Joltid's p2p engine have been reassigned to other Skype engineering projects, like its forthcoming platform for third-parties.

This deal:

• Sold! The bullets, Phil Wolff, Skype Journal, November 6, 2009
• The rumored deal devalues Skype five percent, Skype Journal, November 6, 2009
• How much gold do you pay pirates?, Skype Journal, November 4, 2009
• eBay 2009q3 investor results (the Skype parts), Skype Journal, October 22, 2009
• Volpi's Skype Business Concept: SIP, social, lite, layoffs, Skype Journal, October 14, 2009
• Is Joltid's using the world's best patent troll law firm?, Skype Journal, September 20, 2009
• Lawyers are cheap, Skype Journal, September 17, 2009
• Labor Day thoughts on the 2009 Skype sale, Skype Journal, September 7, 2009
• Who will own Skype? Om picked up the phone, Skype Journal, September 3, 2009
• The Skype sale: Hot Buzz and No Response, Skype Journal, September 1, 2009
• Skype sale: 20 Things We Don't Know, Skype Journal, September 1, 2009
• The Sale as described by the Buyers, Skype Journal, September 1, 2009
• Skype CEO: "Today, Skype begins a new chapter", Skype Journal, September 1, 2009

The last deal:

• Who got what when Skype's investors sold to eBay? Phil Wolff, Skype Journal, June 7, 2007
• Sold to mwhitman, a member from San Francisco, Martin Geddes, Skype Journal, September 13, 2005

tags: skype, sale, spinout, spinoff, m&a, acquisition, ebay, investors, eBay, Silver Lake, silverlake, Canada Pension Plan Investment Board, cppib, Andreessen Horowitz Fund, AndreessenHorowitz, Joltid, p2p, peer-to-peer, intellectual propertyproperty

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

Sold! The bullets

1. The deal values Skype at $2.75 billion.
2. Index is out, freeing up 2.4% of the equity.
3. Niklas Zennström and Janus Friis are in.
4. They are contributing Joltid software for 10% of the company.
5. They are paying $83 million for 4% of the company (a discount, since that would value the $2.08 billion).
6. They are dropping the ugly lawsuits.
7. eBay will keep 30%, instead of 35%.
8. eBay still gets $1.9 billion cash.
9. Silver Lake, Andreessen Horowitz, and other investors will own 56%, down from 65%.
10. This values the Joltid IP at $275 million.

This begs the question: Why didn't Meg Whitman buy the Joltid IP when it was vastly cheaper in 2005? In 2005 the only market for the Global Index was to iffy music sharing services without a business model.

Congrats to all for this stage being over. So will Skype's next big liquidity event be an IPO or a merger? If M&A, with whom?

eBay's release:

Nov 6, 2009

eBay Inc.

eBay Inc. and Silver Lake Investor Group Settle Skype Litigation with Joltid Limited

SAN JOSE, Calif.--(BUSINESS WIRE)--eBay Inc. (NASDAQ: EBAY) today announced that the investor group led by Silver Lake, which had previously entered into a definitive agreement to acquire a majority stake in Skype from the company, has reached a settlement agreement with Joltid Limited and Joost N.V. that gives Skype ownership over all software previously licensed from Joltid and ends all litigation currently pending against the investor group and eBay at the closing of the acquisition.

As part of the settlement agreement, Joltid and Skype founders Niklas Zennström and Janus Friis will join the investor group, contributing Joltid software and making a significant capital investment in exchange for a 14 percent stake in Skype. As a result, Silver Lake and other investors including Andreessen Horowitz and the Canada Pension Plan Investment Board (CPPIB), will together hold 56 percent of Skype and eBay will retain 30 percent. As previously announced, eBay will receive approximately $1.9 billion in cash upon the completion of the sale and a note from the buyer in the principal amount of $125 million. The deal, which values Skype at $2.75 billion and is not subject to a financing condition, is expected to close in the fourth quarter of 2009.

“Skype will be well positioned to move forward under new owners with ownership and control over its core technology,” said eBay Inc. President and CEO John Donahoe. “At the same time, eBay continues to retain a significant stake in Skype and will benefit from its continued growth. We look forward to closing the deal and focusing on growing our core ecommerce and payments businesses.”

Commenting on the agreement on behalf of the investor group, Silver Lake Managing Director Egon Durban said: "We are very pleased to have the litigation resolved. We remain confident in a great future for Skype, and we look forward to working with Niklas, Janus and the other investors as partners to help the company achieve its full potential."

The investor group will no longer include Index Ventures, which has withdrawn from participation. Commenting on its decision to withdraw, Danny Rimer of Index Ventures, said: "We are pleased that Skype will now be able to put litigation behind it, and we wish Josh Silverman, his team and the Skype investors well in continuing to grow a great business. Although Skype has the potential to be a great investment, the deal terms changed for Index such that it no longer matches our investment criteria and thus we have decided not to participate in the transaction."

tags: skype, ebay

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
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How much gold do you pay pirates?

They came for fortune but were keelhauled and made to walk the plank. Now Skype's founders are back in a small fast ship, ready to sink her if they don't get paid. Do you fight to defend the S.S. Skype? Can you bribe the scoundrels and trust them to leave? Or do you bend, take them on as partners, and suffer them so you can put back to sea?

What do the two sides bring to the parley?

The Captain Z and Mister Friis wield barristers and silver. They sued Skype over the software license, swearing oaths were broken, blood is due, and Skype should be dry-docked until treasure is paid. They sued the new investment team, claiming keys to Joltid's treasure were smuggled from Joost's lockbox to key investors. And they lugged a treasure chest of cash and promises for outright ownership.

eBay and the Capitalists race to safer waters. Skype's quartermasters slaved for months to replace Skype's sails with sheets of their own making. Skype's lawyers dispute each scurvy claim and denounce them. It looks like prevailing winds for Skype's lawyers but fate, the courts, and codemongers are uncertain. 

Can eBay buy their absence cheaply this winter? Are you better off swashbuckling until a verdict comes next summer? Would you throw the Index Capitalists overboard, making room for the Dane and Swede at the Captain's Table? Could you ever turn your back once they were aboard?

The tale comes to this. Would you make a deal with the Devil himself to save your ship a battle? Or can you chart a course for open seas that leaves the pirates adrift in your wake?

Bonus Clue: Are the pirates on retainer in a grander scheme? Who benefits if Skype fails? Who would pay two billion dollars to shut Skype down?

tags: skype, joltid, joost, pirates, piracy, litigation, ebay, $ebay, $skype

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

Pop quiz: What kind of Pirate are you?

BusinessWeek Book review: Piracy as Innovation Strategy: Can illegal copies provide inspiration? "Matt Mason, a former London deejay and the founder of RWD, a popular British magazine, argues for piracy as a business model rather than a threat. In his new book, The Pirate's Dilemma, he discusses the history of piracy--and how it drives innovation"

eBay 2009q3 investor results (the Skype parts)

eBay says Skype sale is on track for mid 2009q4 (November). eBay's cash will live offshore; no immediate plans for it.

Let's look at Skype's performance for July, August, and September this year.

First, Skypers called for 30.8 billion minutes this quarter.

Not only did Skypers call more, more were connected to the Skype network at the same time. Skype's peak dialtone figures crossed the 19 million mark earlier this quarter. Dialtone is a measure of network availability.  

While both Skype-to-Skype and Skype-to-PSTN activity grew, Skype's Freemium Rate (the ratio between the two) also rose to a new high. The freemium rate is the number of free minutes per paid minute. It indicates demand for the premium service and suggests the company's ability to convert free users to fee services. We'll watch to see if this trend continues.

Skype's customers paid $185.2 million this quarter. Revenue continued to grow outside the US but fell slightly in the US.

Skype's prices are stable despite pressure from competitors. Revenue per minute is $0.06, rising again for the second quarter in a row.

While Skype doesn't report active user accounts or abandoned accounts, Skype did say it picked up 40.3 million new users in the third quarter. That's 442,857 new users daily. That's a measure of the effectiveness of Skype's marketing, customer word of mouth, and network effects.

The smart Hudson Barton Real Users Estimate is now over 47 million users, approximating the number of people actively using Skype. My naïve estimate is roughly 114 million people use Skype in a given month.

 

eBay reported the effect of the Skype deal on their financials. 

They will sell 65% of Skype for about $1.8 billion in cash, most of it outside the United States. I assume they'll spend it on future M&A.

They expect Skype to contribute $100 million in profits in the first 45 days of the fourth quarter. After that they don't expect to see Skype post much profit since it will be paying "interest costs and amortization of intangibles."

I'm assuming the 2009 Annual report and 10K will include data for the last six weeks of Skype's activity before the sale. After that, Skype will be privately held and won't need to report financial information.

tags: ebay, skype, financials, charts, trends, stats, statistics, performance

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
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Who will own Skype? Om picked up the phone

It looks a little like this:

Om Malik estimates:

• Silverlake Partners: $1.48 billion.
• Canada Pension Plan (CPP) Investment Board: $300 million.
• Index Ventures Growth Fund: $70 million.
• Andreessen Horowitz: $50 million or a sixth of Marc Andreessen’s new $300 million fund.

So that almost answers #5 of our twenty spinoff questions "How is the investor pool structured and divided? Which funds and people own what?" We don't know if they'll all get the same stock, seats on the board, if anyone (banks, executives, employees) get small slivers of Skype Ltd. We also don't know who invested in Silverlake's fund.

tags: skype, investors, ebay, silverlake, cpp, indexventures, andreessenhorowitz

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Skype employees: exercise your calendars

Skype filed an update to a August 10, 2009 filing about employee stock purchase and awards with the U.S. SEC (pdf file).

"Q32.     If I am a Skype employee, can I still participate in the eBay Stock Option Exchange Program? What will happen to my eligible options and new RSUs if the sale of Skype is completed?

A32.     Our agreement to sell Skype raises important matters for you to consider in making a decision whether or not to participate in eBay’s Stock Option Exchange Program. Here are some things you should consider in evaluating whether or not to participate in the Stock Option Exchange Program.

As we have announced, we expect that the sale of Skype will close during the fourth quarter of 2009. If the sale of Skype is completed, as of the closing date of the sale you will no longer be an employee of eBay or one of its majority-owned subsidiaries. If you participate in the Stock Option Exchange Program and exchange your eligible options for new RSUs, you must be an employee of eBay or one of its majority-owned subsidiaries on the vesting date of the RSUs in order for the RSUs to vest. If your RSUs do not vest, you will not receive shares of eBay common stock under your new RSUs. The earliest vesting date for any new RSUs received in the Stock Option Exchange Program will be the first anniversary of the completion date (i.e., in September 2010).

As a Skype employee, if you decide not to exchange eligible options through the Stock Option Exchange Program, you generally will have three months or 90 days from the completion of the sale of Skype to exercise any vested options. Your vested options will only have value if eBay’s stock price is higher than the exercise price during the period in which you are eligible to exercise your vested options. Unvested options will expire upon completion of the sale.

Only you can decide whether or not to participate in the Stock Option Exchange Program.”

My advice: 1. Get a chartered accountant or an employment lawyer to review your situation this month. 2. Skype/eBay HR will brief you; don't skip the sessions. 3. Draw a timeline showing all the dates and decision points. 4. Test your plan against the scenario where you leave the company. 5. Get your paperwork in early.

tags: skype, hr, stock, financials, spinout, spinoff

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

Skype sale: 20 Things We Don't Know

Things we don't know about the sale of Skype.

1. Who are the unnamed investors providing the bulk of the $1.9 billion in cash? [Update: We know a little more.]
2. Are Skype's founders among the new investors?
3. Which large competitors joined the investor pool? Big telecom companies? Cisco? Microsoft? Google? [Update: We don't know who put money into Silverlake Partners]
4. Any Recovery.gov funds find their way into the investor pool?
5. How is the investor pool structured and divided? Which funds and people own what? [Update: "The CPPIB, which manages retirement funds for Canadians, will put up $300-million in cash for a 15 per cent stake, The Globe and Mail has learned." That's 15% of the 65%.]
6. Who will sit on Skype's board? Who will chair?
7. Will Marc Andreessen remain on eBay's board? Is there a conflict of interest?
8. What is the timing? "The transaction, which is not subject to a financing condition, is expected to close in the fourth quarter of 2009." What are the steps the parties must complete? In what order? By when?
9. Do the investors require Skype resolve the Joltid lawsuit before closing?
10. What bank is handling the transaction? 
11. What assets are included in the sale? What intellectual property?
12. Are there any regulatory hurdles?
13. What secures the "note from the buyer in the principal amount of $125 million"?
14. Will employees get a taste of the spinoff capital? Bonuses?
15. Will all employees stay or will some return to eBay?
16. Why is eBay holding 35%? To reconcile asking and selling price? via @aswath
17. Can eBay still IPO its 35% post-sale shares?[Update: Maybe, but the other investors and the company management would have to agree.]
18. What is the investors' exit strategy? IPO? @andyabramson. [Update: Maybe, but eBay and the company management would have to agree.]
19. Will the official headquarters remain in Luxembourg? [Update: Yes.]
20. If eBay investors are as angry as Om Malik says they should be, can they block the sale? (Shades of Yahoo!-Microsoft)

tags: skype, ebay, ipo

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
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Managing the Google/On2 merger at Skype

I don't work for Skype. Here's advice I'd give to senior management on how to respond to Google buying On2, which makes Skype's video engine.

1. It's a threat. It may not have been Google's intent, but Skype should consider this an attack by a rival. While the media and the blogosphere have been focusing on On2's value to YouTube, Google could also apply these resources it to its realtime talk properties (Talk, Voice, Wave) and to the Chrome browser (the better to play/capture videos without an Adobe plug-in).

2. The deal isn't done. I'm sure the lawyers can cook up ways to interfere, contracts and regulatory influence (monopoly power), perhaps raid the company for talent that doesn't want to move. The low road. Better to engineer your way out of this exposure by making/buying the talent/technology/IP so you no longer rely upon On2 products.

3. It changes the video codec industry. Google hasn't had a strong competence in codecs. Until now. They have the potential to promote On2's codecs by licensing them freely or open sourcing them. That's how industry de facto standards are made. Two effects: This could drain the swamp as all the small video codec makers starve, going out of this business. Frozen standards may also limit Skype's ability to innovate around video codecs or strike interoperability deals as Google assumes industry leadership in that technology.

4. Act yesterday. While the deal's effects are not immediate, Skype's learning curve may be substantial and you'll want every day possible to own your core IP. I'm sure you've started already.

5. Keep focus. Skype has a diverse product portfolio. An audio/video/signal engineering initiative (a center of excellence? a subsidiary that licenses the technology?) (The Skype Immersive Reality Institute?) could take resources and attention from other strategic investments. Keep balance. The right workflows around product lifecycles and product mix should help keep balance.

6. Short term, this may be a time to negotiate a better deal with On2. You can always leave them behind, but you may want to secure promises of technical support, ongoing maintenance, best prices, continued improvement in the product, etc.

What advice would you add?

tags: skype, video, m&a, google, on2, googletalk, googlevoice, googlewave, adobe, googlechrome, competition, strategy, management

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

The Skype's Not Falling

On behalf of headline writers everywhere, sorry for the fear escalation.

Take a deep breath.

Skype is not shutting down.

All's running well.

Skype remains very profitable. Likely more than $100 million this year.

Skype has at least 10 months until a court date.

Joltid must prove to a judge that Skype broke a contract.

Joltid must prove the breach in one part of the contract was big enough to justify voiding the whole thing.

Joltid has to prove they were harmed by whatever they claim Skype did.

Joltid has to prove the proper remedy is killing the goose that laid Joltid's golden egg.

Not easy to do.

But let's say Joltid beats Skype/eBay in court.

Let's say the judge tells Skype: stop using Joltid's code and pay a fine too.

That probably won't matter.

Skype's busy making new code.

Skype may even buy code from a Joltid competitor.

Code to swap out sometime in the next 10 months.

So even if Skype loses in court, users keep on Skyping, Skype keeps making money, and everyone's happy except for the people at Joltid.

Skype knows this.

So they're working hard to be ready.

In the middle of next year.

Four seasons from now.

So don't panic.

Don't fret.

Sleep well.

Keep Skyping.

And don't forget your towel.

tags: skype, joltid, dontpanic, towel, pin

Call me at +1-510-316-9773, Skype me, follow @skypejournal and @Phil Wolff.
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Net2Phone v. Skype IP suit going to court in September

From eBay's 2009q2 Form 10Q: 

In June 2006, Net2Phone, Inc. filed a lawsuit in the U.S. District Court for the District of New Jersey (No. 06-2469) alleging that eBay Inc., Skype Technologies S.A., and Skype Inc. infringed five patents owned by Net2Phone relating to point-to-point Internet protocol. The suit seeks an injunction against continuing infringement, unspecified damages, including treble damages for willful infringement, and interest, costs, and fees. We have filed an answer and counterclaims asserting that the patents are invalid, unenforceable, and were not infringed. The parties have completed claim construction briefing and attended a pre-trial conference hearing. The claim construction hearing date has been set for September 2009. The trial date is not yet set. The U.S. Patent and Trademark Office has accepted reexamination on all five Net2Phone patents that are the subject of the lawsuit. We believe that we have meritorious defenses and intend to defend ourselves vigorously.

tags: skype, net2phone, patent, suit, lawsuit, 06-2469

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Skype sets new performance records, preserves margins in 2009q2

eBay reports $170 million Skype revenue for the quarter, 25% year over year growth. 20% of revenue was from the USA (green line below). Management kept margins stable at 23.6% (the big purple line below).

8.4% of all revenue ($14.3 million) is from marketing services and other revenues. These include licensing Skype's brand for Skype Certified products, certification fees, and Skype Prime fees.

+37.3 million new accounts, 414k daily (the red line below). This brings Skype to 480.5 million cumulative accounts. The adoption rate fell slightly this quarter.

25.5 billion Skype-to-Skype minutes served in Q2 (blue line), 3.0 billion Skype-to-PSTN minutes (red line). Is the rate of growth slowing or is it just seasonality?

This puts Skype's freemium rate at 8.5 (8.5 free minutes for every paid minute). Still within Skype's historical range and very low (lower is better) compared to other services. Some companies have freemium rates around 20-1 or 50-to-1. The curvy line below is Skype's freemium rate over time.

tags: skype, skypejournal, stats, financials, revenue, profit, margin, minutes, freemium, trends, charts, statistics, performance, ebay

Call me at +1-510-455-4384, Skype me, follow @skypejournal and @Phil Wolff.
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Reminder: eBay 2009q2 Earnings Call Wednesday PM Pacific

Wednesday, 22 July 2009, 2:00 PM Pacific (in your time zone).

Will Skype and PayPal still be growing strong? Has the Great Recession driven value-seeking customers to Skype? How is that affecting Skype's freemium rate? Will eBay disclose new metrics of Skype's performance prior to selling Skype shares?

Join the Skype Journal Investor Forum (Capacity: 150 analysts and investors) for a little backchannel discussion during the call.

tags: skype, investorrels, financials, events, stock, performance, ebay

Call me at +1-510-455-4384, Skype me, follow @skypejournal and @Phil Wolff.
Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

eBay puts distance between Skype and Markets

You knew it was coming. Now eBay is weaning its markets sites from Skype influence. No longer is Skype among "More eBay Sites."

Meanwhile, eBay forbids Skype links/buttons in listings.

Skype voice and chat buttons in listings are being discontinued

eBay is discontinuing Skype voice and chat buttons in listings as of June 10, 2009 in an effort to remove features with limited buyer and seller usage.

This change does not require any action on your part. We are just notifying you that as of June 10, you will no longer see the Skype voice and chat options when you list new items, they will not be included on the new item page, and they will no longer appear in your existing listings.

We appreciate your continued commitment to good communications with your customers.

Sincerely,
eBay Seller Team

"Features with limited buyer and seller usage"? It's a shame how no executive in eBay markets had ownership of Skype integration. eBay made it awkward and difficult for sellers to try; Skype never had a chance with such passive-aggressive behavior from eBay.

One more nail in "synergy."

tags: skype, ebay, integration, synergy

Call me at +1-510-455-4384, Skype me, follow @skypejournal and @Phil Wolff.
Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

Skype's 2009q1 showed IPO-worthy growth and profits

CORRECTION: Skype's year-over-year revenue growth is 38% after correcting for foreign exchange. We reported 28%. 

eBay announced quarterly reports today. Skype did well. Activity continues to go up, revenue goes up, people keep joining at a faster rate.

Skype's Freemium Rate (the blue line below) holds steady, showing people are still willing to pay to talk, finding value in Skype's paid services.

26.5 billion minutes called last quarter. 23.6 billion minutes free Skype-to-Skype, 2.9 billion minutes Skype-to-PSTN. 1 in 8 people paid for Skype calling (Freemium Rate: 8.1).

Revenues continue to rise at a rate about the same as new users trying Skype.  

Revenue: $153.2 million

• $613 million/year run rate
• 21% year-over-year growth in dollars, 38% yoy foreign exchange neutral
• $143 million from transactions, $10 million from marketing and other revenue
• 80% from international (non-USA) sources

37.9 million new accounts

• 416,484 new accounts per day
• 443.2 million accounts (cumulative)

Skype reports non-mobile users connected to the Skype cloud (Skype dialtone) throughout the day. On weekdays, this number is now ranging between 16-17 million at peak and 9-10 million. It rolls as different time zones come online. This puts the number of active users at between 100 and 150 million by Skype Journal estimates.

The growth in online users has been growing in a straight line for years. There's a summer slow-down for seasonality, but Skype could be at a weekday peak of 18 million simultaneous by 2009 year-end.

Skype is on page 16 of eBay's slides below.

eBay 2009q1 Earnings Slides

View more presentations from evanwolf.

tags: skype, ebay, financials, 2009q1, stats, statistics, trends

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Skype's market value over time

By Jean Mercier, Skype Numerologist and regular contributor to Skype Journal.

Wandering over the Internet I found several comments on the value of Skype, for instance here and here.

Interesting to see an analyst predicted a revenue of $786 million (for 2010? I guess this was a typo, and they meant 2009) while I predicted $750 million for 2009 in a private chat with some Skype fanatics some days ago.

Well, lets wait to refine the predictions: eBay will divulge their results Wednesday for the first quarter of 2009!

[EDITED] Added on the graph the weighted average of the Skype Journal Poll based on 68 votes.

tags: skype, statistics, trends, marketcap, value, valuation, ipo, analysts, ebay

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Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

What will eBay do with Skype money? Buy into Korea

$US 1.2 billion for a stake in South Korea's Gmarket auction site. Skype had better fetch a pretty penny if eBay Inc. is going to keep up this M&A effort.

Skype is currently operating in Korea as part of eBay's Auction company. Will Skype's separation from eBay require reorganizing their Korean operations?

The press release and SEC Form 8-K.

UPDATE: eBay stock is back where it was a week ago, discounting both the Skype IPO and Gmarket news.

tags: skype, ebay, gmarket, auction, kr, korea, business, investment, m&a

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Skype To Be Spun Off, Makes Plans for IPO

A huge shock in the Internet telephony world today, as Skype parent company eBay has announced plans to spin Skype off into it's own separate company. Additionally, Skype will be taken public with an Initial Public Offering in 2010.

As their blog states:

"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 engine - e-commerce and online payments - and deliver long-term value to our stockholders."

This is huge news, as rumors have been swirling for the past few weeks surrounding Skype's future. Many thought Skype might be sold off to another firm. Also, there were other rumors that the founders of Skype might try to buy the company back from eBay, after eBay spent $3.1 Billion a few years ago to acquire Skype.

I've never thought eBay would sell off Skype to another entity as the company has reliable profits (around $551 million last year) and is strongly positioned in the VoIP telephony market.

Also, Josh Silverman is an excellent CEO thus far and Skype has a fantastic management team all around.

Skype has had great successes in the last few month, including the introduction of their iPhone application, which had amazing download numbers. The app had been downloaded more than 1 million times within 26 hours of it's debut on the the iTunes store.

I'm anxious to see what's next out of Skype, the granddaddy of VoIP today.

[Official Press Release]

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eBay makes a market in Skype stock

So you've read about eBay making an IPO of some Skype stock in early 2010 after "the founders’ offer fell on deaf ears."

This means:

• The stock market values Skype, instead of bankers or M&A experts. Mark Evans. "Skype has a strong, global brand and a fast-growing business to pull off an IPO. In fact, Skype’s IPO could be red-hot given how it will have strong appeal to retail investors."
• Value When The Market Is Low. The IPO won't be for all of Skype's stock. It could be for as little as ten percent. A 2010h1 IPO will value Skype near the bottom of a (presumed) economic and stock market recovery. So Skype's prices should rise with the market if the IPO is executed properly.
• Bargaining chip? Friis and Zennstrom were clearly trying to preempt a public valuation, getting Skype cheaply. Could an IPO actually help F&Z raise more money to buy Skype before an IPO?
  • Brier Dudley. "I wonder if this will be a milestone, marking the return of tech IPOs. Or could it be a negotiation tactic, to get someone to buy Skype before the offering?"
  • Larry Dignan: "My translation: eBay wants Zennstrom and Friis to raise their price for Skype. And the threat of a Skype IPO is one handy way to get that price up."
  • On the other hand, Alan Marks said for eBay "We're not soliciting bids, we're pursuing an IPO."
• More Liquidity. Post IPO, eBay can sell off the rest of its shares as it sees fit, hopefully appreciated. Meanwhile it can recognize its Skype holdings at more than the post-write-down purchase value.
• Bet on Management. IPOs are a vote of confidence in a company's management. John Furrier: "This again is total validation for the new management at Skype and Josh Silverman. Josh has masterfully led this rapid acceleration of one of the best performing five years old since ‘Sunshine Street’."
• Happy HR. Skype employees will switch to Skype stock instead of eBay stock, improving hiring, retention and motivation.
• Identity. Ownership won't change Skype's operations. It will probably affect their financial reporting, no longer filtered through eBay. 
• No debt to speak of.
• The deal itself: Goldman Sachs may get to sell Skype. No word on which stock exchange will get to IPO Skype. 
• Lots to talk about at the eBay investor call next week.

Other buzz...

Reuters analysts regurgitate useless information.

Andy Abramson is concerned about the company: "But, the issue around JOLT ID needs to be clarified and other questions remain, mostly how in a measured broadband world, Skype keeps playing without any payment to the ISPs, how they deal with the regulators and E911 issues as they look more and more like a telco each day; what their mobile strategy is and more."

Rich Tehrani is excited for VoIP: "It will wipe away the idea that Vonage represents the entire IP communications market."

Alec Saunders is excited for the stock market: "A massive Skype IPO would be just the thing to electrify financial markets, and bring tech stocks back with a roar.  Could Skype have the same impact on financial markets as Netscape with their massive IPO in the 1990’s?  We can only hope."

Larry Dignan is excited for the M&A game: "Now is a good time to take Skype public. It’s growing, it has a critical mass and it could be a fine acquisition target in the future—for a company other than eBay. By plotting an IPO eBay is clearly stating that Skype is worth more. Game on."

tags: ipo, skype, ebay, financials, investment

Call me at +1-510-455-4384, Skype me, follow @skypejournal and @Phil Wolff.
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"The founders’ offer fell on deaf ears"

From the WSJ.com Deal Blog [links and emphases mine]:

A group including KKR, Warburg Pincus, Providence* and Elevation Partners recently teamed up to back the founders of Skype in an attempt to buy back their free Internet calling service from Ebay, according to people familiar with the bid.

Founders Niklas Zennstrom and Janus Friis originally approached Ebay about repurchasing Skype, which acquired the service for $2.6 billion in 2005. Ebay encouraged them to make an offer, and the Scandinavian billionaires rounded up a group of private-equity firms to back them, the person familiar with the bid said. News of the Skype’s founders’ offer was earlier reported in the New York Times, but names of the private-equity firms have not yet been reported.

The proposal involved private-equity firms contributing some $1 billion to the deal, according to people familiar with the situation, though a full deal price could not be learned. The transaction also involved Ebay providing financing for the deal.

The founders’ offer fell on deaf ears, as it was well below the price at which Ebay was willing to sell the business. The two sides are far apart and at this stage a deal involving the private-equity firms is unlikely to be completed, said people familiar with the matter.

*I suspect it was Provident Bankshares, not Providence; Provident is about to be purchased by KKR.

So this gets back to valuation. Survey: What's a fair price for Skype?

Skype Journal investor relations events (22,29 April), forum, etherpad

1. Coming events:
   • eBay's Q1 2009 Earnings Call
     April 22, 2009
   • 2009 Annual Meeting of Stockholders
     April 29, 2009
2. Join our Skype Journal Investor Forum to track the news and dissect the financial statements. This is a Skype chat.
3. Let's etherpad the 22 April earnings call. I thought we'd try collaborative note taking with EtherPad, a realtime wiki page. Our etherpad (free, browser based) lets us see everyone typing on a single page at the same time. Creative commons. Kinda fun.

tags: skype, ebay, investor, skypejournal, 10Q

Call me at +1-510-455-4384, Skype me, follow @skypejournal and @Phil Wolff.
Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

What's a good price for Skype Ltd?

New York Times reports Skype founders Zennstrom and Friis are raising about $1 billion to buy back Skype. The article says some analysts think eBay would want at least Skype's book value: $1.7 billion.

So what would a good market value be? Skype are profitable to the tune of $100+ million/year. Ten times earnings seems lowball to me.

Two years from now Skype could easily have $1 billion in revenue. At current 20% profits, that's $200 million in free cash per year. 10x suggests a $2 billion value.

Unless there's a premium for growth. Skype might easily step into adjacent markets. $1 billion run rate in three years for a light version of WebEx-style conferencing. $1 billion in two years for a cloud computing platform that lets you build Skype into your web apps and enterprise systems. $1 billion in four years for Skype inside of televisions and set top boxes.

Despite eBay's protestations, there are also massive opportunities for eBay-Skype-PayPal synergy. What eBay and PayPal do for markets that bring together buyers and sellers of atoms, eBay+Skype+PayPal could do for markets of service, information, education, and entertainment, a much larger market. Sadly, every eBay alum I've talked with in the last six months says eBay execs are incapable of that much innovation, head stuck firmly inside the 1999 eCommerce box.

Which leaves us with the price.

At what price will eBay sell?

tags: skype, ebay, financials, marketvalue

Call me at +1-510-455-4384, Skype me, follow @skypejournal and @Phil Wolff.
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Skype Red: Ground Penetrating Wi-Fi

Just because you're dormant doesn't mean you're offline. New advances in Ground Penetrating Wi-Fi (802.11gp) let your mobile phone or laptop stay connected to Skype and the rest of the Internet while you're six feet under. Your persistent Skype chats and voice mails will be all queued for you at dusk.

Cemeteries are a growing market for Skype partners Linksys, Cisco, and others making routers supporting the new technology. The gold standard is the D-Link Red, above, able to deliver 100Mbps two meters under soil at a distance of 25 meters.

Coffin makers are also equipping their products with batteries and uninterruptable power supplies. Laptop and smartphone batteries still have trouble making it from sunrise to sunset without a charge.

Cemeteries are racing to zone plots with Wi-Fi coverage, hoping to charge tenants a premium.

On the down side, privacy advocates urge caution, warning most graveyards have lax security, even online. 

cc-by: TheeErin

+iPhone: Updating the Skype Product Family mindmap

Added Skype for iPhone to the Mobile Software branch of the Skype Products mind map.

UPDATE: 30 March 2009: Added Skype For SIP, Skype for iPhone, Skype co-brand clients, Skype for Asterisk SDK. Changed from eBay extension to eBay toolbar.

tags: skype, iphone, products

Call me at +1-510-455-4384, Skype me, follow @skypejournal and @Phil Wolff.
Visit our Skype Journal private roundtable, one of the longest running public Skype chats.

eBay Analyst Day: Donohoe: Screw the Synergy, Skype is fine on its own

[Editor: My paraphrase. Mr. Donahoe is more genteel.]

AP's Rachel Metz:

"I think it was an acquisition that had potential, we thought it would have synergy. In the fast-moving Internet world it's turning out not to. I'm being transparent about that," he said.

He wouldn't say whether eBay may eventually sell the unit, saying just that the company will "do what will allow Skype to maximize its success."

New York Times DealBook Blog:

Mr. Donahoe repeated that eBay was wrong in assuming that Skype would “enhance communication between buyers and sellers and reduce friction in the eBay marketplace and payments.” But he also said eBay “was done apologizing” for buying the calling service and that it was a great standalone business.

And when asked by Bits’ Brad Stone if Skype was for sale, Mr. Donahoe smiled and declined to answer directly, Mr. Stone reported.

CNBC's Jim Goldman

At the same time, Donahoe himself admitted that eBay's purchase of Skype, designed to facilitate transactions between buyers and sellers, has failed. But that doesn't mean the business model around Skype isn't compelling. The company has already written down the billions it spent on Skype, and as of today, Donahoe says "We are done apologizing for Skype." Now the challenge will be to turn the unit into a revenue driver.

Forbes' Brian Caulfield:

CEO John Donahoe admits that the company's plans for Skype didn't work.

EBay has finally admitted it. It doesn't have a grand plan to fit its online calling service, Skype, into its e-commerce business. That's OK though, because Skype is starting to look a lot like what eBay used to be.

tags: skype, ebayinc

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photo: ebayink

Evildoers trust Skype encryption, Cops seek more power

BBC News reports:

Officers in Milan say organised crime, arms and drugs traffickers, and prostitution rings are turning to Skype in order to frustrate investigators.

The police say Skype's encryption system is a secret which the company refuses to share with the authorities.

Investigators have become increasingly reliant on wiretaps in recent years.

http://en.wikipedia.org/wiki/Milan have highlighted the Skype issue.

They overheard a suspected cocaine trafficker telling an accomplice to switch to Skype in order to get details of a 2kg (4.4lb) drug consignment.

So:

1. Get your friends to use Skype!
2. Police don't like to tap PCs – harder, more dangerous for officers.
3. Police should enjoy intercepting Skype Lite for mobiles and Skypephones since gateways run by Skype or iSkoot should be convenient and safe.
4. Police and intelligence agencies in the UK (explained more recently), Germany, the US,  and now Italy are trying to pressure the public to give them more surveillance power, using Skype's encryption as the pretext.
5. Word Of Mouth Works!

tags: encryption

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