eBay Writes Off Only 35% of Skype Price?

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It was September 2005, and the world (including this blogger) struggled to understand why eBay would value Skype so highly as to pay $2.6 billion for sole ownership of the peer-to-peer voice over Internet service. Well, just on October 1, 2007 just a little more than 2 years after first announcing the deal, eBay writes off $900 million and takes another $530 million to account for getting eBay out of the performance elements of the buyout (there was an additional $1.7 billion if Skype met certain performance targets).

In the grand scheme of things, this represents bad news for VoIP service providers hoping for more of the massive buyouts. For Vonage shareholders this is more bad news as if their stock prices haven't been telling them the same thing - VoIP services are risky.

The Wall Street Journal's take is here (subscription required).

The announcement came in concert with personnel changes at Skype too. Usually eBay moves talent directly into subsidiaries and integrates quickly, however, Skype was left pretty much a standalone business - until now. Niklas Zennström, one of the original founders and CEO at the time of the acquisition in 2005, is now non-executive chairman awaiting his final payout.

Nevertheless, Meg Whitman, the CEO of eBay, should have written off a lot more of the goodwill of the company. Contributing only $90 million in the past quarter in the company's overall $1.83 billion of REVENUE is pathetic for a $1.7 billion asset. And, if that $90 billion is at 80% margins, (possible given it's software and data center only status), it's only a return on assets of (0.8 x 90)/1,700 = 4%.  Surely, she should have aligned it more aggressively and written off even more. Nobody would buy Skype at half that valuation, especially given the dire straights of other VoIP service providers (Vonage, SunRocket), so this is really a lost revaluation opportunity.

Brockmann does not hold stock in eBay.