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eBay Suits Up Skype for 2010 IPO

By Erika Morphy
Apr 15, 2009 11:38 AM PT

eBay is planning to spin off Skype in a public offering next year. While Skype has been successful in terms of growing its user base since being acquired by eBay over three years ago, the VoIP (voice over Internet protocol) service has proven to be a less-than-perfect match with the Internet auction powerhouse.

eBay Suits Up Skype for 2010 IPO

"What can I tell you? It was a bad acquisition from the beginning. eBay said it was about the synergies between the two companies, but those never materialized," Scott Testa, a professor of marketing at St. Joseph's University, told the E-Commerce Times.

However, as a successful example of a Web 2.0 business -- primarily in Europe -- Skype could make for an especially interesting IPO in 2010, Raymond Van Dyke, a partner at Merchant & Gould, told the E-Commerce Times. "Since the hopeful synergy between eBay and Skype failed to materialize, it was only a matter of time until eBay sensibly returned to its e-commerce roots."

Indeed, the question to ask may not be "why get rid of Skype," but rather "why do it in this manner?" After all, tech IPOs had been few and far between even before the economy cratered in September.

Dearth of IPOs

For instance, when Rackspace went public last August, it was the tech industry's first IPO in six months. Even though Wall Street has showed signs of slight but steady growth over the last few weeks, investors are still spooked by the events of the previous six months. IPOs generally don't perform well in poor economic times, delivering lower than expected returns to investors and often registering a loss within hours.

However, as it's now planned, Skype's IPO will not take place for several months; by then the market will hopefully have made progress toward recovery. Indeed, there are several tech companies quietly waiting in the wings for an uptick in activity. For instance, in an earlier interview with CRM Buyer, Xactly CEO Christopher Cabrera said he is expecting to take the company public when the economy recovers.

The difference with Skype is that it is a highly visible company, both in its own right and because of its eBay parentage. In addition, questions regarding its future path have become increasingly pointed.

A public declaration that it is going the IPO route makes sense, Testa said. The founders of the Luxembourg-based Skype have reportedly explored financing to buy the company back, he noted. "My gut is, eBay tried to shop it, but couldn't get the price it wanted. So they opted for an IPO, which could bring them more than just selling it."

eBay paid US$2.6 billion for the service in 2005.

A New Start

Still, a Skype IPO is by no means guaranteed to be successful. Even 2010 promises to be a barren environment for IPOs, Gartner research director Elroy Jopling wrote in a research note.

Also, Van Dyke noted, there are a number of IP (intellectual property) disputes that remain to be resolved, which could impact the IPO. "In addition to IP issues with the founders of Skype, the company's very success piggybacking off the main carriers' lines could lead to additional IP disputes over time," he said.

All that said, taking Skype public would give the company the opportunity for a new start, Gartner's Jopling said.

"Expect the new Skype to go back to basics, which is its core consumer business," he wrote. "Secondarily, Skype will emphasize its mobile and enterprise business opportunities. Both of these have not been easy going in the past, but the recent massive number of downloads of Skype to the Apple iPhone represents a significant achievement in the mobile space."

Still, he continued, a resurgence of Skype is in no way a given. "Skype may be a U.S. $500 million company with a recognizable brand and a wealth of communication experience, but it is still dwarfed by its competition in effectively all the areas of Skype's strengths."

These are points prospective investors are sure to take into account when the time comes.

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