Is Skype Worth $3B?

While Skype has turned the communications world on its head, few agree that it's worth that much

August 11, 2005

3 Min Read
Is Skype Worth $3B?

Reports of a Skype Technologies SA sale have permeated VOIP circles in recent days, and the $3 billion price tag being bandied about reminds some of headier days (see Skype Rules North American VOIP).

Several reports say that Skype is ready to sell out, and that meetings took place in Europe last month in which Rupert Murdoch’s News Corp.tried to buy the VOIP company. Rumors also persist that the firm has hired Morgan Stanleyto manage the matchmaking and to help raise funds.

Does the $3 billion figure reflect the value of the company? Light Reading asked some VOIP industry sources and found that, while Skype impresses, the fact that it could command a $3 billion price caused a little backbiting (see VOIP Subscriber Numbers Soar).

“That seems like a lot of money for a customer base that doesn’t generate revenue,” sniffs Nuvio Corp. CEO Jason Talley. Kansas-based Nuvio provides a consumer VOIP service similar to Vonage.

Talley says Skype’s pay services are not used by the majority of its users (see Skype Lowers Call Costs). “Most of them are just using it as an audio instant messenger, so is $3 billion the right price to pay for that? If that is the price, then I’m certainly excited about the valuations that companies like Nuvio and Vonage might bring."

Vonage’s Jeffery Citron declined to weigh in on the issue (see Vonage Raises Another $200M). Vonage has distanced itself from direct comparisons to Skype, saying that Vonage intends to be a regulatory-compliant replacement for standard phone service, where Skype is a “second service.”

The reputed Skype valuation brought back memories of late 90s “irrational exuberance” for 8x8 Inc. (Nasdaq: EGHT) CEO Bryan Martin, too. “If market caps are defined by number of subscribers, then we're back in the good old days,” he says.

“There was a time back in '99 where you were worth a million for every engineer you had working for you, and you had to just go out and hire to get your valuation up. I think that you could make the argument that a similarly ridiculous metric is being applied here."

Others closer to the peer-to-peer world were not so surprised at the Skype valuation. “I think it’s reasonable that they would be valued at above a billion -- I don’t know if $3 billion is the right number," says one Skype competitor.

Many believe companies like Vonage and Skype must be valued based on the size of their user base far more than on their VOIP technology.

“That’s a pretty wild number -- I was a little surprised,” says Bart Schachter of Bay Area VC Blueprint Ventures. “But it is hard to think of another property with as international a reach as Skype has; it has more international reach than EBayand probably more than Google (Nasdaq: GOOG) -- it’s truly an international phenomenon."

Skype was founded by 39-year-old Niklas Zennstrom and 29-year-old Janus Friis, also the founders of the popular file sharing application KaZaA. The Skype application has been downloaded 147 million times, according to the company’s Website.

— Mark Sullivan, Reporter, Light Reading

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like