EBay slashes Skype's value by $870m

By Staff, Brand Republic 02-Oct-07, 09:20

SAN FRANCISCO - EBay has admitted that its internet telephone service Skype has fallen well short of achieving financial targets, and has written down the value of its $2.6bn (£1.28bn) investment in the company by a third.

The online auction giant bought Skype two years ago, with plans to integrate it into its auction listings and PayPal businesses. However, a high proportion of Skype's 200m registered users are inactive and its premium-rate services have failed to pull in hoped-for revenues.

Yesterday, eBay took a $1.43bn charge on its balance sheet, of which $530m was paid to Skype's shareholders as an early bonus payment and $870m was written off Skype's value. Under the deal, Skype's shareholders had been in line for up to $1.7bn in earn-out fees in relation to the three-year performance targets.

Although Skype was once a pioneer in the field of internet telephony, similar free services have been launched by ISPs such as Microsoft and Yahoo! Some analysts have suggested that eBay should concentrate on driving advertising revenues through Skype, rather than trying to entice users to pay for its premium services.

In the first half of this year, Skype's revenues were $168m, which eBay conceded fell short of initial expectations.

EBay's write-down of Skype coincided with the announcement that Skype founders, Niklas Zennstrom and Janus Friis, are leaving the company.

Skype's lacklustre performance has led eBay to agree an early earn-out payment to Skype's founders and shareholders of $530m, which frees it of any further financial obligations.

Despite the write-down, eBay remained confident that Skype's long term prospects were good and said it had no plans to sell the subsidiary.