News Flash! eBay overpaid for Skype

October 10, 2007
skypeebayWell, I am a huge fan of Skype, but I didn't need to be financial analyst to see that eBay overpaid for Skype when they acquired them for nearly $3 billion. Two years ago when the acquisition happened, I wrote, "Sure you could add a little Skype Me button next to each eBay online listing, but how many auctioners want to be bothered to interact via voice? Some might I suppose, especially for large ticket items such as cars, but more auctioners I would bet prefer to interact anonymously using email. There are plenty of web call-me button companies such as eStara that are a heck of a lot cheaper than $2-$3 billion." In a follow-up article, I wrote:
I'm sure the stock traders and insiders will probably be heavily pushing their clients to buy eBay at the opening bell. "VoIP is hot right now. You can't lose!"

Uh huh, we've heard that before.

I am happy for Mr. Zennstrom who will become a billionaire overnight and I thank him for creating one of the coolest Internet applications ever created. But eBay stockholders? You've been had.

Well, two years later, the NY Times has an article coming to my same conclusion, while Niklas Zennstrom attempts to defend the value in Skype. eBay said last week that it would take a $1.43 billion charge for the service. The article explains "the write-down was widely seen as a concession that eBay had overpaid for Skype, but Mr. Zennstrom, a Swede who was a co-founder of the company in 2003, defended its value."

Niklas points out that In the second quarter, revenue grew 100 percent from a year earlier, to $90 million, and the company recorded a profit in the first quarter, he said.

Ok, so Skype has $90 million in revenue in a single quarter. That works out to $90 x 4 = $360 million per year. In about 7 years eBay would recoup its $2.6 billion investment, right? Wrong. $90 million is revenue not profit. When you consider employee salaries, bandwidth overhead, termination costs, etc. their profits are probably more like $50 million, which would make it 13 years before eBay turned a profit with Skype.

However, this $50 million profit per quarter is strictly a guess. It could be higher, it could be lower. But even if you assume the $90 million per quarter was 100% profit (which it isn't), it would still take 7 years to turn a profit - that's a lifetime in any industry sector, but even more so in technology. Technology changes so fast, in 7 years, someone could invent something that makes paying for calls moot. Heck, today we have Jajah, Mobivox, Truphone, and a ton of other providers offering free calls.

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Comments to News Flash! eBay overpaid for Skype


  1. connaa :
    October 10, 2007 11:28 AM

    Wow I really like your site. I love Wordpress. But i'm new to it. I like the theme that you used


  1. JS :
    October 10, 2007 5:08 PM

    Wow, Ebay did not make a smart decision when acquiring Skype. A lot can happen in 7 years.


  1. mark :
    October 10, 2007 8:14 PM

    eBay had a lot of money anyways....


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