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.