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EBay plans Skype IPO next year

The Internet telephony unit doesn't mesh with eBay's two other businesses

By Juan Carlos Perez
April 14, 2009 12:00 PM ET

IDG News Service - EBay plans to spin off Skype via an initial public offering (IPO) because the Internet telephony unit doesn't mesh with the company's two other businesses -- e-commerce and online payments.

EBay announced on Tuesday that it expects to complete Skype's IPO in the first half of next year. When exactly that happens will depend on market conditions.

"Skype is a great stand-alone business with strong fundamentals and accelerating momentum," eBay CEO John Donahoe said in a statement. "But it's clear that Skype has limited synergies with eBay and PayPal."

The plan is yet another acknowledgment that eBay's $2.6 billion acquisition of Skype in October 2005 was a costly blunder.

Skype was supposed to significantly enhance communications between merchants and buyers in eBay's online marketplace, but that never happened. Two years after the acquisition, eBay wrote down Skype's value by $1.4 billion.

Operating Skype as a separate, publicly traded company is the right thing to do for the Internet telephony player and eBay, Donahoe said. It will give Skype the necessary "focus and resources" and allow eBay to concentrate on e-commerce and online payments, he said.

Donahoe made the decision after giving himself a year to evaluate Skype's performance and its potential synergies with eBay and its other Web sites and services, eBay said.

Skype had revenue of $551 million in 2008, a 44% increase compared to 2007. It had 405 million registered users at the end of last year, a 47% jump from the year before. EBay expects Skype's revenue to exceed $1 billion in 2011, it said.

EBay itself is struggling to jump-start growth in its online marketplace, as it faces increased competition from Amazon.com and other rivals. In 2008's fourth quarter, the revenue from its Marketplaces unit declined 16% from the same quarter in 2007, while gross merchandise volume declined 12%. Unique monthly users also dropped year over year.

Saying eBay hadn't kept up with key trends in e-commerce, Donahoe outlined a three-year plan for growth last month. "The [eBay] marketplace hasn't kept up with competition, nor customer needs," he told financial analysts at eBay's San Jose headquarters.

EBay has been a victim of its success, which made it hard for it to make changes that would position itself for the future. "We were trying to protect our past," he said then.

On Monday, eBay announced the sale of StumbleUpon, another company it acquired in 2007, saying that it too lacks "synergies" with eBay's core business.

On Tuesday, eBay said it will begin taking a more hands-on approach to solving disputes between merchants and sellers, a departure from its laissez-faire philosophy.

Starting around mid-June, eBay will sometimes issue refunds at its own expense to buyers who don't receive an item they bought or receive a different product. EBay said it will do this even if it determines the seller wasn't at fault.

It will also steer buyers to take their complaints to eBay for resolution, as opposed to reporting them to its PayPal online payment unit.

The steps are part of an attempt to make eBay more attractive to a broader audience of shoppers who consider the buying experience today too risky and chaotic.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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