Skype Going Public!

IPO investors: Skype's calling.

The popular web-based voice and video communications platform is filing to go public, hoping to raise $100 million and prove that eBay (Nasdaq: EBAY  ) sold a majority stake in the upstart too soon.

With 560 million registered users, Skype is a global phenomenon. Unfortunately, that's a cumulative figure over the years. In terms of actual active users, Skype clocks in with a more reasonable -- yet still impressive -- 124 million monthly users.

Unfortunately for Skype, most of those are freeloaders. They are wooed by the ability to chat with their friends on PCs and smartphone apps. Just 8.1 million Skype users are considered paying customers, forking over real money to communicate with landlines and mobile phones.

Skype's model works. The company finally turned a profit in 2008 and would have been in the black last year if not for a chunky litigation settlement with the platform's founders and costs related to eBay's sale.

Through the first six months of 2010, revenue climbed 25% to $406.2 million, primarily through its premium SkypeOut service in which users pay to call out to conventional telephone numbers around the world. Earnings clocked in at $13.1 million, translating into low margins for a presumably scalable technology. However, interest expense is a voracious eater here. If the IPO is successful and Skype is able to swap out some debt for equity, margins should improve nicely.

Web-based telephony is alive again. Vonage (NYSE: VG  ) has seen its stock pop sevenfold since bottoming out last year, though it competes against conventional landline offerings instead of Skype's "pay as you go" premium features.

Skype will also be challenged by technology. It has remained relevant through the smartphone revolution, rolling out apps for Apple (Nasdaq: AAPL  ) , Google (Nasdaq: GOOG  ) , Research In Motion (Nasdaq: RIMM  ) , Nokia (NYSE: NOK  ) , and Linux wireless platforms. This should broaden its base of active users, but at the expense of generating profitless Skype-to-Skype calls. Attractive international rates will help, but carriers are going to be watching this closely to make sure that their own cash cows aren't being slaughtered.

The one question that will be answered -- once and for all, if this IPO goes through -- is if eBay made the right move in selling a 65% stake for $1.9 billion last year. Mr. Market will decide what Skype is truly worth.

Skype's ownership group wants to make a bigger push in the corporate market, including the potentially promising multi-user videoconferencing market.

As a public company, we'll get to see Skype succeed or flop on a quarterly basis. The challenges and opportunities are real, and Skype's household name will make this an actively watched debutante.

Does the Skype IPO interest you? Share your thoughts in the comments box below.

Nokia is a Motley Fool Inside Value recommendation. Google is a Motley Fool Rule Breakers selection. Apple and eBay are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a bull call spread position on eBay. The Fool owns shares of Google. Try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user with 178 positive feedbacks to show for it. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 09, 2010, at 5:21 PM, InLikeFlynn wrote:

    Skype's starting model reminds me of Google - free stuff that works well in the hands of millions of users. From there they have a strong basis to build on for premium i.e. revenue generating services.

    I use it personally and get family members on it as well. This is in preference to all the other options out there like Yahoo Messenger & Windows Live.

    It's also used in my company as the unofficial IM solution (There's an official one noone uses) and almost all of my customers and partner contacts use it too. Since we are scattered around the country and the world we also use it for one-to-one and conference calls - this is in preference to our VOIP phone system.

    Skype is very impressive, it will be interesting to see how they do post IPO

  • Report this Comment On August 09, 2010, at 10:24 PM, ken11111 wrote:

    I hear you on skype, but what about Mabcure? Ticker - mbci - that stock is a gold mine waiting to happen.

  • Report this Comment On August 10, 2010, at 10:14 AM, ndboy3 wrote:

    As long as there is a war going on Skype will be in business because around 95% of deployed Service Members use it as there form of communication home.

  • Report this Comment On August 12, 2010, at 5:32 PM, PSU69 wrote:

    I Skype. I have conducted conference calls with team members from California to Spain all talking like we are sitting around the kitchen table. Looking forward to the ipo.

  • Report this Comment On April 03, 2013, at 4:21 PM, fern2013 wrote:

    I name is significant, and skype has become common like craigslist and google. Most teens and military will say, "skype me"... and that's what gets branded in people's brain.

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