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Summary:

Update: So the deed is done – $4.1 billion. EBay will pay $1.3 billion in cash and $1.3 billion in stock for the online communications company. It will make a further payout of up to $1.5 billion if certain financial targets are met, Reuters reports. Charlie […]

Update: So the deed is done – $4.1 billion. EBay will pay $1.3 billion in cash and $1.3 billion in stock for the online communications company. It will make a further payout of up to $1.5 billion if certain financial targets are met, Reuters reports. Charlie Sierra calculates: “So at 50m downloads, that’s $52/download, or $26 In CASH per download.” Downloads, are the new “Pageviews” it seems! ;-) Also that works out to about $20 million/Skype employee – which is ten times what Cisco paid at the top of the bubble when it bought companies.

A few quick thoughts before I get to a long analysis. It is a tactical admission that the fraud on eBay is so huge, that the company had to spend considerable amount of dollars to do something about it. I don’t think, Skype will be the white knight for eBay – which has been facing executive exodus and general loss of market momentum. I mean, if you can put up a website, and buy Google adwords, you are taking eBay out of the equation. Will SKype help prevent that shift? Not sure, it will.

A few months ago, I wrote, Mr. Metcalfe Meet Market Reality – a piece that highlighted that eBay’s natural growth days might be over. This is proof the company, which is floundering a bit, is looking for new markets. I don’t think this is as much about voice as it is a quest to get a new set of users. Also what does it say about eBay – the company that buys Skype after Yahoo, Google and others had passed on it?

Stock Markets don’t like the fact that the deal will slice a “cent per share” off eBay’s earnings about a cent per share until the end of 2006, adds Reuters. Stocks down 1.81 percent to $37.93 after skidding 4% last week when the rumors first emerged. Still big up to Skype investors – Mangrove Capital Partners, Draper Fisher Jurvetson, Bessemer Venture Partners and Index Ventures – especially DFJ who have hit a “Barry Bonds” style homerun with this sale.

Here is Andy, Jeff Pulver, Jon Arnold and Mark Evans take on this. James Enck’s succinct summary is a must read.

Business Week reports that EBay is hosting an investor call at 5 am pacific time tomorrow morning – which they call unusual. Is this the eBay-Skype announcement? FT has a story saying the deal is in the works for $4 billion or change. “Honestly, I still don’t see the logic at anything near that price, but it could be we’ll find out shortly what eBay has up its sleeve,” writes BusinessWeek’s Rob Hoff. Me neither – it is a strange acquisition, if that indeed is the case. Yet another proof, in SV there is a sucker on every exit! More of my opinion, and what others think!

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  1. If this is Skype….

    Did someone call Mark Cuban in for some deal making? Who else could sell a company with hardly any assets or revenue for multiple billions? I just typed broadcast.com into FireFox and what did I see? A redirect to Yahoo.com. There is nothing left.

    I think that goes down as the most expensive redirect ever–$5.7 billion.

  2. Nicely put mr. gales. very nicely put.

  3. Look we may quibble about the actual price, but the fact is that skype does indeed have a VERY, VERY, VERY valuable asset.

    Secondly, an Ebay purchase makes helluva alot more sense than Yahoo, Murdoch or even Google.

    If the above is not intuitively obvious, allow me a few more hints.

    Who does eBay do business with? Who does their PayPal product do business with? Thousands and thousands of sellers, and millions of buyers. That my friends means super low CPGA and churn, and greater levels of integration/service for all eBay partners. Plus, to paraphrase ZZ-Top, skype is world-wide.

    The deal to buy skype, if that is indeed what the CC is about, is no-doubt predicated on three things:
    1) The actual NPV of skype sometime into the (near?) future, which is much less than $4B.
    2) The tie-in benefits, etc. with its core auction business.
    3) The tie-in benefits with Paypal.

    Ebay already has an internal ARPU figure for each tier of major repeat sellers. Question is what’s the NPV of boosting just that eBay ARPU another $5-10/mo in cashflow and greater lock-in, or as Buffett would say a wider moat. Whats the value of grabbing a some subscribers from the millions of buyers…

    PS. This is most definitely a STOCK deal, no way Meg’s board will allow her to dump $4B of cash, so that alone is a huge mitigating term.

    The only question I have is: Why isn’t Bezo’s in on this action? Think of the recent explosion of used book sellers who piggyback on top of amazon.com.

    Is Amazon asleep at the wheel? Jeff wake up, buddy.

  4. Om,

    I just though of a new valuation metric:
    $$$/download (hey its 3am and I’m abit punchy, vbg)

    I just now read the article and price as reported is $2.6B, half cash (which is pretty bold).

    So at 50m downloads, thats ~$52/download, or ~$26 CASH/download.

    The thing is, Skype was always designed from the get-go with voice being just another software application, but what’s different with Vonage/SunRocket/Comcast/Verizon/etc is the open API and the vision that subscribers would buy a bundle of software services, not merely different commodity pipes.

    Compare this vision with the RBOC/MSO’s triple/quad-play strategy which basically bundles different pipes, all of which just push bits in the end.

  5. Digital Media Review » eBay about to announce Skype acquisition Monday, September 12, 2005

    [...] In what promises to be a sad day for eBay investors, Om Malik is connecting the dots on an immiment announcement of the eBay acquisition of Skype: Business Week reports that EBay is hosting an investor call at 5 am pacific time tomorrow morning – which they call unusual. Is this the eBay-Skype announcement? FT has a story saying the deal is in the works for $4 billion or change. [...]

  6. This is strategic and defensive.

    They can’t afford to let YHOO or GOOG dominate a segment of the internet that they might need to leverage in the future. The specifics of those needs don’t need to be fully thought out by eBay. They just know that they can’t afford to miss the boat.

    And, for that, eBay will pay billions for Skype. If they don’t, they will end up losing billions in the future.

    God forbid that eBay miss the VOIP boat and have to rely on Yahoo or Google as a partner to provide VOIP service/integration.

  7. Connected Internet News | Broadband Mobile Gaming News Monday, September 12, 2005

    eBay Holding Investor Call Tomorrow – To Announce Skype Deal?

    Apparently eBay have scheduled an unusua investor call at 5am pacific
    time which I think is 1pm GMT, which may be to announce a deal with
    Skype.

    Figures of £3-4 billion are
    being suggested.  This will be one of the craziest deals ever i…

  8. Skype Bought for $4.1 Billion! — Alec Saunders .LOG Monday, September 12, 2005

    [...] Om Malik reported late last night that reporters have been told EBay will be hosting a 5 AM PST conference call on Tuesday to cover an announcement from two hours earlier. MarketWatch at 5 AM this morning posted a story with this quote from Meg Whitman: eBay said the Skype service would be integrated into its ecommerce business, greasing the wheels of its online marketplace by making it easier for buyers and sellers to communicate. Meg Whitman, eBay’s chief executive officer, said that communications was "at the heart of ecommerce and community," and that the acquisition would create "an extraordinarily powerful environment for business on the net." [...]

  9. It’s done. Check the news. $2.6 billion, with an additional $1.5 billion “earn out” by 2008.

  10. It’s done. Check the news. $2.6 billion, with an additional $1.5 billion “earn out” by 2008.

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