Skype Files for IPO, But Will Wall Street Embrace It?

Skype has filed its long-awaited IPO documents, but how will Wall Street react to a company with few paying subscribers, and dogged by competitive threats from Google and Apple?

Kelly Teal, Contributing Editor

August 9, 2010

2 Min Read
Skype Files for IPO, But Will Wall Street Embrace It?

Internet voice and video provider Skype on Monday emerged from its start-up mode” and filed its long-anticipated go-public documents, something some observers thought would never happen.

Skype returned to private ownership last November once auction giant eBay Inc. decided the mind-boggling $2.6 billion purchase from 2005 wouldnt pay off. eBay sold Skype for about $1.9 billion, after some lawsuits settled, to private investors including Silver Lake and Andreessen Horowitz. eBay retains a stake in Skype, as do Skype founders Niklas Zennstrom and Janus Friis.

Now, Silver Lake et al appear to be working on their exit strategy for Skype, even though such an IPO has been touted as a smoke screen” to drive up the price of a potential Skype buyback by Zennstrom and Friis. But considering the amount of money Skypes collective owners have paid to make the go-public filings, the IPO whose debut remains unknown likely is not a smoke screen.

Luxembourg-based Skype reportedly plans to raise $100 million from the IPO; the dollar figure could change and, in fact, Skype didnt say in its filing how many shares it will offer, in what price range or when. The $100 million comes from media outlets including the Financial Times and Bloombergs BusinessWeek.

All of that, of course, raises questions. First, how will Skype make more money? From January to June, Skype made $406.2 million in revenue but netted income of just $13.1 million much of it from interest. Most Skype subscribers use the companys free services. A mere 8.1 million out of 560 million registered users pay to use Skype, although each of those 8.1 million is expected to spend $96 this year.

Thus, Wall Street will want to know why it should buy shares of Skype. While Skype no longer resembles a Silicon Valley fixture of the early 2000s think of all those startups with no earnings to speak of yet riding high on investor hype it has yet to show steady profit. In a prepared statement, hoping to soothe such concerns, Skype said it will expand advertising, licensing and business services. We will continue to develop new monetization models for our large connected user base,” the company said.

But will that be enough for a skeptical Wall Street? Indeed, investors have reacted with tepid enthusiasm to tech IPOs so far this year and the dot-com bust of a decade ago remains on their minds. Plus, Skype does face serious competitive threats from Google Inc. and Apple Inc. That alone could be enough to keep Wall Street at arms length.

Skype said it plans to trade on the Nasdaq Stock Market but has not decided on a ticker symbol.

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About the Author(s)

Kelly Teal

Contributing Editor, Channel Futures

Kelly Teal has more than 20 years’ experience as a journalist, editor and analyst, with longtime expertise in the indirect channel. She worked on the Channel Partners magazine staff for 11 years. Kelly now is principal of Kreativ Energy LLC.

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