Skype Files For IPO, Only 6 Percent Of Users Pay

Preparing for an eventual public offering, Skype has now filed an IPO registration statement with the SEC. The maximum proposed offering amount is listed as $100 million, but that is just a placeholder amount.

According to the filing, Skype’s revenues for the first six months of 2010 were $406 million, with a net income of only $13 million. But a big portion of that was from interest income. That is only a 3 percent net margin, and this isn’t exactly a new business. Its income from operations was only $1.4 million for the six months. However, its gross margins are 51 percent, and have been expanding steadily as the company benefits from the scale of is operations and is able to negotiate lower telephone termination fees around the world.

On the IPO road show, Skype will no doubt point to its adjusted EBITDA (earnings before income taxes and depreciation) numbers, which conveniently strip out things like goodwill, stock-based compensation and litigation expenses. Adjusted EBITDA for the first half of 2010 was $115.7 million, up 54 percent from a year ago. The company currently has $85 million in cash. These numbers reflect pro forma adjustments to Skype’s historical financial statements. (Click on the financial results table below to enlarge):

One interesting tidbit from the filing is that Skype had to pay $344 million to settle with the Skype founders for the Joltid peer-to-peer technology that at one point threatened to hold up the spin-off of Skype from eBay.

The filing also reveals that Skype “users made 95 billion minutes of voice and video calls” during the first half of 2010, with a full 40 percent of those minutes being video. Skype users also sent 84 million SMS text messages through Skype during the period.

As of June 30, Skype was averaging 124 million users a month, with only 8.1 million of those paying users (out of a total of 560 million registered users). Those users, however, pay an average of $96 a year. Skype’s strategy is to keep growing its overall number of users and convert more of them to paying customers.

Getting more people to buy Skype-Out minutes will obviously not be sufficient. Skype also plans on adding advertising revenues and enterprise products (37 percent of users surveyed say they use Skype for business purposes). According to the filing, part of Skype’s strategy will be to:

Develop new monetization models, including advertising. Our users made over 152 billion minutes of Skype-to-Skype calls in the twelve months ended June 30, 2010. We believe this represents a meaningful opportunity to increase our revenue from alternative monetization models, including advertising, gaming and virtual gifts.

The company is based in Luxemborg and is offering American depository shares. A new holding company will be created following the offering which will combine the ownership from public investors, private investors such as Silver Lake Partners and Andreessen Horowitz, and employees. The convoluted chart below shows what the new ownership structure will look like: