What is a Skype?

For those of you who haven’t heard of Skype, it’s a Voice-over-IP telephony service, or in plain terms, it’s phone service over the Internet. Skype currently has 55 million registered users around the world, but only a fraction pay for the service. Here’s the thing…. if you use your Skype service to call another Skype user, the service is FREE…. if you call a non-Skype phone, then it’s a few pennies a minute. Last year, Skype raked in a modest $7 million in revenues; hardly a powerhouse in the telecommunications industry. Next year, it’s expected to earn $60 million in revenues…. still a drop in the bucket compared to established firms such as Verizon or Qwest. But don’t tell eBay that…. earlier today, eBay paid $2.6 BILLION (yes, with a ‘B’) for Skype, with performance incentives that could make the deal balloon to $4.1 billion. That’s huge premium for a company with such small revenue expectations.

Using my newly bestowed MBA-degree, I can tell that a Skype, with a 43.3 Price to Revenue multiple ($2.6 billion / $60 million) is definitely on the high side of scale. Verizon has a multiple of 1.23 and even high-flyer Google only has a multiple of 18.65. eBay is either really ahead of the rest of us… or just made a huge mistake.

If you make a lot of long-distance calls, it may be worth it to get a Skype account. After all, there’s nothing wrong about having free phone calls. Watch out though… MSN just added voice to their Messenger product and a bunch of other VoIP companies are beginning to emerge. It’ll be a feeding frenzy to get a sharehold of the market, since once people establish a community of members they can call free, it’ll be hard to get them to switch. Happy calling!

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