Yesterday, eBay Inc. (NASDAQ: EBAY) announced that the co-founder and chief executive of its Skype division, Niklas Zennstrom , was stepping down, and that eBay would take $1.43 billion in charges for the internet phone division. Of that, $900 million will be a write-down in the value of Skype, what's called an impairment charge. The rest, $530 million, is payment for certain shareholders to settle future obligations.Well, well, well. It seems that eBay had finally caught on. Hadn't investors been saying the $2.6 billion Skype acquisition in October 2005 was overvalued from all along?
While Skype was profitable the last two quarters, its contribution to eBay's top line was abysmal considering it was one of three legs eBay was counting on in its Power of Three strategy. The other two being the online auction business, or market place, and PayPal, the online payment service. For 2006, Skype contributed $194 million to eBay's near $6 billion revenue, that's about 3.2%. To give you an idea, market place contributed $4.3 billion and PayPal $1.4 billion. In the first six months of 2007, Skype did better and contributed $168 million or 4.7% to eBay's total revenue of $3.6 billion. Better, and certainly growing nicely (over 100% year-over-year growth), but still a far cry from what it should be considering the price paid.
So now it's obvious to everyone, even eBay CEO Meg Whitman, that eBay overpaid for Skype, buying into the hype that customers, which Skype does have, would bring profits without really having a sound business model to do so or a sound synergy plan. Unlike Google, which offers its services for free but makes money on the ads, Skype is limited in its ability to increase its fees and did not manage to make much money other than from its basic service.
Now the question is, what's next. DealBook suggests that Skype may be put on the block with the argument that another company that can find synergies between its operations and Skype might pay a premium. Quoting Breakingviews.com, DealBook offers that a social networking site such as MySpace of Facebook could be interested in the telecom division. There could definitely be more synergies there.
Regardless of what exactly happens next, it's good to see eBay management open their eyes. Perhaps now eBay could keep on moving forward with its two leading segments and come up with new strategies and revenue streams without being bogged down by the weight of the third
Now the question is, what's next. DealBook suggests that Skype may be put on the block with the argument that another company that can find synergies between its operations and Skype might pay a premium. Quoting Breakingviews.com, DealBook offers that a social networking site such as MySpace of Facebook could be interested in the telecom division. There could definitely be more synergies there.
Regardless of what exactly happens next, it's good to see eBay management open their eyes. Perhaps now eBay could keep on moving forward with its two leading segments and come up with new strategies and revenue streams without being bogged down by the weight of the third
Retailers can't wait for Black Friday, open Thursday
Tiffany's serves up solid quarterly earnings
Cramer on BloggingStocks: This bullish retail story looks like a good fit 
Reader Comments (Page 1 of 1)
10-03-2007 @ 11:43AM
Mozelle said...
I have a great idea! LOL...
eBay should sell Skype as soon as possible! They should buy back more stock with that money!
Buy back 1 billion of their own shares over so many years. Never split again! lol. Pay their shareholders a nice dividend.
Concentrate on two things! ebay Auctions and Pay-Pal.
eBay Auctions needs attention! Rivals like Amazon, Overstock, are getting a big share of the market!
Every site on the internet should offer Pay-Pal as an alternative to credit cards! Give buyers and sellers incentives. (New company coming with lower fees)
Bottom line...They need to concentrate on two things. Auctions and Pay-Pal. Skype is out!