Close to two years ago eBay acquired Skype for $2.6 billion. Today I read the news that the synergies are not playing out (surprise, surprise) and eBay will take charges of $1.4 billion, most of which is attributed to the acquisition writedown. From Bloomberg.com:
EBay, acknowledging that Skype hasn’t performed as expected since acquiring it for $2.6 billion in October 2005, said in a statement today that it will write down the value of Skype by $900 million in the third quarter, as well as take an additional charge of $533 million to pay former shareholders under a provision of the takeover agreement.
To put things in some perspective though, Skype’s second quarter revenue is at $90 million. If you read through my past notes, 2004 revenue was $7M and 2005 revenue was projected (near time of acquisition) to be $60M+.
The Internet serves as a great record for these case studies. It it interesting to read some of stuff bloggers wrote two years ago about this deal. And bloggers like Paul Kedrosky (who seems to tip that the impairment may not be enough) and Om Malik are writing again today.
To digress a bit, I can imagine the discussions that are going on about whether the strategy was flawed or whether there was a failure to execute. I don’t know what the case was here, but I can almost hear chanting from my past colleagues and mentors that there was a failure to execute. Seems like execution failures are blamed more often than strategic failures (for better or worse).
I’ve always thought that the strategy behind the acquisition of Skype was flawed. If you have a flawed strategy, perfect execution rarely helps.
Did eBay really think they would get $2.6 billion (or more) of value from buying what is basically a voip company? I never quite understood the ‘network effect’ that everyone was touting.
Well I tipped my hand that I felt the synergies seems implausible for the money fetched, so I was on the same side as you – that the strategy (as stated) was flawed.
That said, the revenue growth for Skype was pretty amazing anyway you slice it. $7M annually to $90M quarterly in 3 years? Interesting to speculate where they would have been (e.g., revenuewise) without the acquisition by eBay …
Skype’s revenue growth was good…but I think it would have been better if left unfettered by eBay and its corporate culture being forced on to Skype employees. Remember all those defections that occured in 2006? I wonder what would have happened if those key personnel would have stayed around.
“Remember all those defections that occured in 2006?”
I actually did not follow what happened, but I can imagine that mixing the orgs together would have tough points.
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