As eBay's Core Business Hits Hard Times, Skype Begins To Shine

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Although eBay beat its downwardly-revised earnings numbers today, its earnings call was filled with glum news for investors. (Full earnings slides embedded below). After three flat quarters, revenues declined 3.6 percent from the second quarter to $2.2 billion. Free cash flow has been going down each of the last four quarters, and so has the total value of goods traded over the auction and e-commerce site. eBay is leaning much more heavily these days on merchant-dominated categories like autos than on auctions between ordinary people.

Even PayPal’s revenues were flat in the quarter at $597 million. Maybe the $945 million acquisition of Bill Me Later will help reignite growth. Its classifieds business (Kijiji) brought in a respectable $250 million in revenues.

Another eBay business that is holding its own, surprisingly, is Skype. Revenues for the third quarter were $143 million. Although its growth rate is slowing, at least it is still growing, both on an annual (46 percent) and sequential quarterly (5 percent) basis. Its total registered users grew 51 percent to 370 million, and those people used up 16 billion minutes of talk time.

The annual growth rate of those minutes ((63 percent) is actually accelerating compared to the preceding quarters. And, most important of all, the number of minutes people actually pay for (2.2 billion Skype Out minutes) is also experiencing accelerating growth (54 percent).

Unfortunately, at only ten percent of eBay’s total revenues, Skype is still too small to counteract its overall decline. Maybe they can still sell it.

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