eBay (NSDQ: EBAY) said Tuesday it would spin off its Skype calling service via an initial public offering during the first half of next year. The announcement culminates months of speculation about eBay's plans for Skype and comes a day after the auction site announced plans to shed another non-strategic asset, website rating service StumbleUpon.
In a statement, CEO John Donahoe said, "Skype is a great stand-alone business with strong fundamentals and accelerating momentum. But it's clear that Skype has limited synergies with eBay and PayPal. In addition, separating Skype will allow eBay to focus entirely on our two core growth enginese-commerce and online payments." (Full release after the jump.)
eBay's core online auction business is struggling from the economic slowdown as well as steep competition, and shedding Skype will allow the company to double down on fixing that business. eBay has also been reported to be interested in purchasing a large stake in Korean online auction site, Gmarket.
The decision to spin off Skype should provide a shot in the arm to the IPO market, which has been dormant for two straight quarters.
Almost from the day that it purchased Skype in 2005 for $2.6 billion, there were doubts about the rationale for the deal. eBay was never able to deliver on its original promise of integrating its own software with Skype to "ease communications and increase the level of trust between its buyers and sellers." And the company wrote down much of the purchase price in 2007.
However, Skype has continued to post meteoric growth even in eBay's hands. Skype's revenue jumped 44 percent last year to $551 million and the number of registered users jumped 47 percent to 405 million. Revenue is expected to reach $1 billion in 2011.
Donahoe had fueled speculation that he would spin off Skype ever since suggesting earlier this year that the company would make a "great stand-alone business." Several parties had been rumored to be interested in purchasing Skype, including the company's two founders, Niklas Zennstrom and Janus Friis, although their offer was reportedly too low.
eBay Inc. Announces Plan for 2010 Initial Public Offering of Skype
SAN JOSE April 14, 2009 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 enginese-commerce and online paymentsand 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 sped 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 availableand 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.
By Joseph Tartakoff