Tito's Blog

Skype Numbers Round-Up

Following rumors about an IPO of Skype, here is a round-up on Skype financials:
Revenues 2008: $551 million (+44% on 2007 figures)
EBITDA 2008: $116 million (21% margin)

Revenues 2010E: $740 million
EBITDA 2010E: $156 million (21% margin)

Ebay bought Skype in september 2005 for $2.6 billion. It then paid earn-outs of $600 million (out of a $1.5 billion earn-out pool) to shareholders. Finally, it wrote-off its investment, which is now held at a book value of $1.7 billion (which is probably the value at which it tried to shop it around, with no takers).

A private equity investor would probably value the business at an EV of about $1.2-1.5 billion (enterprise value, or cash-free/debt-free equity value), given the continued growth and market leadership (Skype alone represents 8% of the long-distance market). However, such a valuation would deliver a reasonable return on capital, only if it were possible to finance it with $700-800 million in acquisition debt, which seems hardly possible in the current LBO market. In an all equity deal, an entry multiple EV/EBITDA above 10x seems too high to deliver a return on the investment of 2-2.5x the cash invested in 3-4 years (equivalent to a low-end private equity return of 20-25% IRR).

Sources:
Skype IPO could range from $1.6B to $3.1 billion
Now We Know: Skype Is Profitable