Skype Sees a Bright Future; Will It Be Spun Off?

[qi:006] When asked by Wall Street analysts if eBay was going to spin out Skype, CEO John Donahue answered with something that resembled a maybe. In a comment worthy of a former consultant, Donahue said, “I think we are now confident that the synergies between Skype and the other parts of our portfolio are minimal. So, we are going to continue to run and operate the business. It’s not a distraction currently and at such time when we have [a] further announcement to that, we’ll let you know.”

I came across the quote while reading the transcript from the conference call eBay held to discuss its latest quarterly results — mostly because a Skype spokesperson emailed me to complain that my last post overlooked the impact of foreign exchange fluctuations. As a result, Brian O’Shaughnessy, head of global communications for Skype, emailed to let me know that my conclusions about their growth were inaccurate. He wrote:

As we noted in the eBay earnings call yesterday: “Let’s turn to our communications business. Skype posted total revenue of $145 million in the fourth quarter, an increase of 26%. Excluding currency translation, Skype revenue accelerated 5 points in the quarter. Total registered users grew to an impressive 405 million, representing an increase of 47%. Skype-to-Skype minutes increased to more than 20 billion during the quarter, representing 72% growth. Skype-Out increased by 61%, to 2.6 billion minutes. The team at Skype continues to invest and grow the business, while maintaining attractive margins.”

Martin Kuhn pointed out that very same thing – the impact of foreign exchange fluctuations on Skype’s revenues. I responded by saying:

…the per user per year SkypeOut minute usage is essentially flat and that the company needs to find millions upon millions of new users to show kind of revenue growth the company has shown this year. In a sense they added about 130 million new registered users in 2008. What are the odds that they will replicate the same kind of growth.

Regardless, the folks at Skype think that I’m seeing the glass as half full. O’Shaughnessy wrote in his email:

And secondly, ARPU actually did increase in Q4. In the slide that was presented at earnings, you see a 61% rise in SkypeOut minutes, which I would submit counters the notion that Skype to Skype is cannibalizing SkypeOut. As you stated we are adding millions and millions of new users and the challenges you state are rich man problem. If we continue on the aggressive path we are currently on – in five to ten years I may concur that they could cause foreseen challenges. But the bottom line is that even though we are adding more and more users, these users are using Skype more.  And while it’s true we have not aggressively marketed broader up sell opportunities – stay tuned.  And lastly, these are good problems to have. More of our users are coming on board now than last month, last quarter or last year and we are effectively challenging the law of large numbers.

Again, I disagree. I think that Skype-to-Skype usage will rise as people go deep into saving-money mode this year, but will that translate into revenues? We shall see. For now, the folks at Skype and I are in respectful disagreement about the company’s future prospects. If I am indeed proven wrong, that would be just fine — I want Skype to thrive, for I couldn’t live without it.

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