eBay swallows Skype for $2.6bn

eBay is to buy VoIP startup Skype for $2.6bn.

Skype is barely two years’ old, yet is already one of the fastest growing Internet companies, with 54 million users. In its last round of venture capital funding in March of last year it brought in around £19 million.

eBay will now buy up all outstanding shares of the privately held company for $2.6bn: $1.3bn in cash and the rest in eBay stock. This latter is capped at $1.5bn. About 40 per cent of investors sold up for a mix of cash and eBay stock, but the remainder have chosen an option that includes future payouts based on performance.

The deal also offers the first glimpse of Skype’s financials. It showed revenues of $7 million for 2004 and expects $60 million for this year – the first full year of its paid-for services. Its guidance for 2006 is riding at $200 million revenues.

eBay intends to use Skype’s communications technologies to make it easier for buyers and sellers to communicate with each other and exchange the information they need to give them the confidence to bid.

It says the acquisition will increase the velocity of sales on eBay as well as adding new revenue streams from Skype’s paid-for voice services, such as calls to fixed and mobile lines, voicemail and SkypeIn – a Skype phone number that allows Skype users to receive calls from fixed and mobile phones.

eBay also thinks its PayPal division will make it easier for Skype users to purchase paid-for services and its massive user base will increase its reach into some of eBay’s less established territories such as India and Russia. Skype is also popular in China, although with the region’s antipathy towards VoIP services that may prove more difficult.

‘Communications is at the heart of ecommerce and community,’ said Meg Whitman, President and Chief Executive Officer of eBay. ‘By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net.’

‘We’re great admirers of how eBay and PayPal have simplified global ecommerce and payments,’ said Janus Friis, Skype co-founder and senior vice president, strategy. ‘Together we feel we can really change the way that people communicate, shop and do business online.’

Founders Niklas Zennström, Skype CEO, and Friis will remain in their current positions. Zennström will report to eBay CEO Whitman and join eBay’s senior executive team.

Rumours of an eBay buy first surfaced last week when a source admitted the two companies were in talks. At that point the deal was thought to be worth anything between $2bn and $5bn, so today’s announcement is in the lower end of that range.

Analysts’ reactions were mixed, hinting that rather than complementing eBay, a Skype buy would be more in line with finding alternative revenue streams because of a deceleration in revenues from its core business.

Shares were off 4 per cent because of these reports last week, although the markets had yet to open at the time of writing.

Another impact of integrating Skype might be that by making it easier for buyers and sellers to communicate directly it makes it easier to negotiate private sales, take the item of eBay listings and avoid paying eBay fees, which can be substantial on higher value goods.