eBay To Spin Off Skype With IPO In 2010

Earlier reports of a repurchase of the VoIP company by its founders with the help of private firms are now off the table.

April 14, 2009

2 Min Read
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Amid rumors that Skype's founders were trying to buy it back, eBay said Tuesday it would spin the VoIP-calling unit into a separate company with an initial public offering scheduled for the first half of 2010.

The online auction company purchased the VoIP company in 2005 for $2.6 billion and other considerations, and then-CEO Meg Whitman envisioned the deal would lead to a more productive business environment because eBay buyers and sellers could use Skype to easily communicate. These synergies never materialized, though, and eBay took a $1.4 billion write-down on the purchase in 2007.

Skype's founders, Niklas Zennstrom and Janus Friis, were reportedly courting venture capitalists to help it buy the company back, but there were no confirmed bids or offers. An eBay spokesperson said the company is committed to an IPO and is not soliciting any bids, but it's not closing the door to offers.

"Skype is a great standalone business with strong fundamentals and accelerating momentum," eBay president and CEO John Donahoe said in a statement. "But it's clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a standalone, publicly traded company is the best path for maximizing its potential."

While Skype has not strengthened eBay as much as its executives would have liked, the VoIP service has seen explosive growth. The division has reported eight straight quarters of profits, and it had $145 million in revenue for the fourth quarter of 2008, representing a 26% year-over-year growth.

In 2008, Skype generated revenue of $551 million, up 44% from 2007, and segment margins of approximately 21%. Registered users reached 405 million by the end of 2008, up 47% 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 revenue.

The VoIP service continues to add new subscribers at a rapid rate, including 35 million new customers in the quarter, bringing its total number of registered users to 405 million for the last quarter of 2008. Skype is already the world's largest provider of long-distance communications, and it's taking aggressive steps to expand beyond the desktop by releasing clients for the iPhone 3G, BlackBerry, Nokia smartphones, and Android devices.

For eBay, the move is the latest step to help it refocus on its roots as an online retailer. The company purchased the Web-discovery service StumbleUpon for about $75 million in 2007, but sold it back to its founders Monday for an undisclosed amount. The company will likely focus future acquisitions on targets with direct synergies like the $820 million purchase of online billing company Bill Me Later.

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