Skype Dials Into a Public Future
According to the S-1 document filed today with the Securities and Exchange Commission (SEC) , Skype will sell American Depositary Shares to go public with management from Goldman Sachs & Co. , JPMorgan Partners , and Morgan Stanley Venture Partners , among others. The IPO comes just eight months after a group of private-equity investors bought a controlling stake in the company from owner eBay Inc. (Nasdaq: EBAY), a deal valued at $2.75 billion. (See Skype Sale Imminent?, eBay Sells 60% of Skype for $1.9B, Former eBay CEO Defends Skype Buy, and Skype's the Limit.)
The VoIP and videoconferencing company has been busy growing its user base and racking up partners, even carving out new niches like video chat. But it will look toward new features, premium services, and advertising to translate its growth into revenues. As a public company, traded on the Nasdaq , it will have to work harder to monetize its users.
The filing was chock full of stats that support Skype's competitive positioning, including that it has 560 million registered users. Of that number, only 124 million are active each month, while just 8.1 million pay an average of $96 per year for the service, primarily for SkypeOut, a VoIP service that connects landline and mobile.
Skype's revenues for the six-month period ending June 30 was $406.2 million, up 25 percent from $324.8 million year-over-year. Its net income for the same period, however, fell from $22.5 million a year ago, to $13.1 million at the end of June.
While 40 percent of Skype calls are made with video chat, most of its users aren't paying for the privilege -- yet.
"Part of our strategy is to expand our products for business customers, expand our mobile products, and attract third-party developers and other companies to extend the functionality of our products," the company wrote in the filing. This includes new features like group video chat with up to five users, as well as premium services, for which Skype would charge. For the remaining non-paying customers, ads will likely become a standard part of the experience.
Skype should also be helped by its relationship with wireless operators, including Verizon Wireless and AT&T Inc. (NYSE: T) in the US, and Three UK in the UK, which could lead to the launch of additional VoIP apps.
Skype's 'mixed' mobile potential
Heavy Reading senior analyst Gabriel Brown describes Skype's relationship with the wireless operators as "mixed." The hostility, driven by carriers' fear of voice revenue cannibalization, which permeated the industry a few years ago, has largely dissipated as the carriers have begun to think more progressively. In the UK, 3 has reportedly been very happy with what Skype has done for it in terms of subscriber spending and retention. (See Mobile VoIP Not a Game Changer and What's AT&T Getting From Skype?)
"A few years ago, there was a lot of uproar about VoIP on mobile phones, but generally everyone is coming around," Brown says. That's primarily because operators have other more pressing threats to their voice revenues and because for most mobile users, Skype -- and other mobile VoIP services -- will only ever be supplementary. The voice quality is not good enough and the service too taxing on battery life to replace traditional telephony, Brown says. (See Mobile’s Top 5 Battery Killers.)
Skype recognizes this challenge, but wrote in the filing that its "business strategy depends on our ability to continue to offer our products on a mobile platform."
"We believe the scale, global distribution and growth of our user base provide us with powerful network effects, whereby Skype becomes more valuable as more people use it, thereby creating an incentive for existing users to encourage new users to join," the company noted in the filing. "We believe that these network effects help us to attract new users and provide significant competitive advantages... In addition, our scale and network effects encourage other companies to form strategic relationships with Skype, creating more value for our users and increasing user engagement."
— Sarah Reedy, Senior Reporter, Light Reading Mobile