eBay to spin off Skype next year

[dhilipkumar]

eBay to spin off Skype next year

NEW YORK: Online auction giant eBay announced plans on Tuesday to spin off Web communications service Skype with an initial public offering next year, ending the troubled relationship between the two firms.

The San Jose, California-based eBay, in a statement, said it expected the IPO for Skype to be completed in the first half of 2010. It said the specific timing would depend on market conditions.

"Skype is a great stand-alone business with strong fundamentals and accelerating momentum," eBay president and chief executive John Donahoe said.

"But it's clear that Skype has limited synergies with eBay and PayPal," he said. "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," Donahoe said.

"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," he said.

eBay purchased Skype in 2005 for 2.6 billion dollars from Web entrepreneurs Niklas Zennstrom of Sweden and Janus Friis of Denmark, who founded the company in 2003.

But eBay found it difficult to integrate the company with its core auction business, and The New York Times reported last week that Zennstrom and Friis were seeking to buy the company back.

eBay did not set a target for the IPO but the market for public offerings has collapsed over the past year.

Current Media, a cable television firm co-founded by former vice president Al Gore, informed the Securities and Exchange Commission on Friday that it was shelving plans for a 100-million-dollar initial public offering.

Since the sale to eBay, the number of registered Skype users has exploded from 53 million to 405 million.

It generated revenue of 551 million dollars last year, up 44 percent from 2007, and expects to top one billion dollars in revenue in 2011.

Skype, which has its headquarters in Luxembourg, bypasses the standard telephone network by channeling voice and video calls over the Internet.

Its service features include being able to call other users free of charge and the ability to connect with land lines or mobile devices at low rates.

Skype also recently enabled Apple iPhone owners to use its service through a free software application. More than two million people have downloaded Skype for the iPhone, according to eBay.

eBay's announcement that it was spinning off Skype came one day after it parted ways with another purchase, StumbleUpon, an Internet startup bought two years ago for 75 million dollars.

eBay's share price gained 3.76 percent to 14.92 dollars in after-hours trading in New York following the announcement of the move to spin off Skype.

[dhilipkumar]

EBay gets over identity crisis with Skype IPO

Analysts today called Tuesday's announcement that eBay Inc. is looking to spin off Skype via an initial public offering a smart move by the online auction house as it tries to get its house back in order.

John Donahoe, CEO of eBay, said that Skype's Internet telephony business doesn't mesh with eBay's other major businesses -- e-commerce and online payments. The online auction house expects to complete Skype's IPO in the first half of next year.

Gordon Haff, an analyst at Illuminata, said Skype has never meshed with eBay's business plans, and was acquired in 2005 as part of what was basically an identity crisis for eBay.

"For eBay, Skype was a really dumb idea in the first place," added Haff. "They said it was going to provide a way for sellers and buyers to talk to each other, but we had the telephone and no one wanted to talk to each other then. The justification never made any sense. And [eBay] never even made a serious attempt to integrate."

Both Haff and John Byrne, a senior analyst at Technology Business Research Inc., said eBay, which has been drifting from its traditional flea market-style auction platform to more of a set-price retailer, has been in the midst of an identity crisis. And unloading Skype could be a sign that the company is getting its act together again.

Haff noted that eBay has issues that have nothing to do with Skype or how much money they sunk into acquiring it. It's the seemingly confused mind-set that got them into the deal in the first place, he noted. That same identity confusion has moved the company away from what had always worked for it -- online auctions -- to encouraging more fixed-price sales, alienating a lot of customers, Haff added.

Byrne said the Skype IPO plans, along with a separate announcement last week that the founders of Web recommendation site StumbleUpon bought it back from eBay for an undisclosed sum, could be some smart spring cleaning that will help bring the online auction house's business into line.

"I think it's about keeping your eyes on the core product," said Byrne. "I think if it helps them clarify who they are as a company and helps them get some of their money back, it's good for them. And it's good for Skype not to be distracted by eBay."

He added that Skype is in a good position and this move shouldn't hurt them.

"Skype is doing very well on its own," said Byrne, adding that the company is attracting new subscribers and revenue. "It's still a disruptive force in the telecom industry."


Elroy Jopling, an analyst at Gartner Inc., said the IPO could be a positive move for Skype -- if a buyer doesn't scoop the company up first.

"The final break-up of Skype by eBay may very well be an opportunity in disguise," said Jopling in an e-mail report. "Skype has the opportunity of a new start, but even this re-birth has questions as a possible initial public offering in 2010 would be at the worst of times, and suitors seem to be few. Expect the new Skype to go back to basics, which is its core consumer business. Secondarily, Skype will emphasize its mobile and enterprise business opportunities. Both of these have not been easy going in the past, but the recent massive number of downloads of Skype to the Apple iPhone represents a significant achievement in the mobile space."

However, Jopling noted that Skype will still come out facing some massive competition and that won't make success come easy.

"The Skype story has only been partly told," he added, "and at this time whether it will be a tragedy or a good news story is far from known."