Banking

Skype underperforms; EBay admits to mistakes


The timesonline reported yesterday that eBay has admitted to massively overpaying for Skype. Back in 2005 eBay bought Skype for a whopping $2.6 billion; now they have warned shareholders that they will have to take an impairment charge of $900 million!

In 2005 eBay put a limit of $1.7 billion on earn-out bonuses which would be based on performance targets; yesterday it announced that they would pay only (!!!) $530 million of bonuses to the Skype founders. Putting on a brave face, an eBay spokesman said, "Skype has not performed as well as we would have hoped. And we are disappointed about the impairment charge. But we still believe Skype to be an extremely valuable asset."

I wonder if eBay had any understanding of what they were buying back in 2005? Skype's only means of generating income is through the sale of additional services like SkypeIn, SkypeOut and call forwarding. While some users will find these services useful, the majority simply want to use Skype to make free computer-to-computer calls, which generates no income for the company.

Will we see more impairment charges from firms who have overvalued their hyped dot-com acquisitions? Is Facebook really worth $10 billion? Maybe people throwing that kind of money around should take less notice of the hype and learn a little more about what they are taking on. I personally think that just like any other social networking site, Facebook may be hot today, but tomorrow people will find something else and move on. There have been so many of these Web sites and after the initial flurry of activity, they tend to fade away until nobody gives them a second thought. One day you're hot, the next you're not.

4 comments
JoeBeckner
JoeBeckner

I wonder how many eBay investors really know what "Impairment Charge" means. I clicked on the link for impairment charge. I found the Investopedia.com definition interesting: '"Impairment charge" is the new term for writing off worthless goodwill' I'm surprised that the write off is only $900 million!

blog2hersh
blog2hersh

I am not really sure about how Skype has turned out be such a fad.Back in 2005, it was a revolutinary idea but I couldn't understand the relevancy of Skype to Ebay's business. I have been an EBay powersller and used Skype on all my listings but I have never received a single Skype query from any customer. Apart from Skype paid products,Skype also have advertising as one of the revenue channel.Call rates are competetive but not cheapest.Unless Skype and Ebay devise something more revolutionary I think Skype is ging down hill faster than we realise.

Justin Fielding
Justin Fielding

To be honest I have never been a huge fan of Skype. I think someone at Yahoo got a little carried away and hugely over-estimated it's value. Being purchased for such a huge amount was bound to stir up a lot of hype but it seems once that has died down people aren't all that impressed.

clint
clint

I guess Ebay found about what the purchased after the fact. Other than the "free" features of Skype it's really a bust from a revenue generating perspective. Ebay got duped on this purchase and they certainly deserve it ... Never was or will be a good business case. I just want to know "Who gets fired for this decision:)