eBay Feedback for ‘Skype Founders:’ D-! Awful Transaction. Would Not Buy From Again.

Published on October 1, 2007
by John Paczkowski

Some people have been critical of Skype, but I am very proud of the company’s growth. Very few companies can claim to match the growth trajectory Skype is on and continues to be on.”

Skype co-founder Niklas ‘NZennström’

It’s taken two years longer than it should have, but skepticism with which investors met eBay’s $2.6 billion-plus purchase of Skype in October 2005 has finally made its way up to eBay management.

This morning the Internet auction giant said it was taking a $1.43 billion charge for its acquisition of the Internet telephone provider and that Niklas Zennström, a co-founder of Skype, was stepping down as chief executive of the division. The charge announced today reflects the “updated long-term financial outlook for Skype,” eBay said in a filing with the Securities and Exchange Commission.

Though Skype’s membership and revenues have grown since the acquisition, it has fallen far short of Wall Street’s general expectations for it. And try as it might, eBay just hasn’t been able to figure out a way to make the sort of money it needs from the company to justify that astonishing $2.6 billion purchase price. Said Derek Brown, an analyst at Cantor Fitzgerald, “It has seemed relatively clear that Skype has underperformed even modest expectations for the last two years.”

Silicon Alley Insider’s Henry Blodget agrees. “The Skype acquisition never made sense strategically, and one reason Skype has struggled, we think, is that it is just a distraction to eBay (which needs desperately to focus on its core commerce business),” Blodget writes. “eBay should immediately sell what’s left of Skype to Yahoo, Microsoft, or Google, all companies that offer portfolios of communications services that Skype might actually benefit from being a part of. Skype is rapidly surrendering its early dominance of soft-phone VOIP to other more focused competitors, and if it stays within the eBay fold, we think further write-downs will be in the offing. Skype was a $2 billion to $4 billion eBay Hail-Mary pass, and it just officially fell incomplete.”

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