Mousetrap weblog: could Skype kill Facebook's $10bn valuation?

EBay, the internet auction site, admitted yesterday that it had overpaid hugely for Skype, the internet telephone company.

It also said that Niklas Zennstrom, Skype’s founder, would step down as chief executive of Skype to become nonexecutive chairman.

He has resigned from the role before his permanent successor has been hired.

The online auctioneer has cut bonuses due to Mr Zennstrom and others by 60 per cent because it was so disappointed by Skype’s performance.

EBay bought Skype in 2005 for $2.6 billion. Yesterday it warned shareholders that it would have to take an impairment charge of $900 million (£450 million) because it had valued the group too highly two years ago.

At the time of the deal, eBay said it would pay a maximum earn-out bonus of $1.7 billion based on various performance targets.

It said yesterday that it would pay only $530 million in cash to the Skype founders in the only and last payment of its kind.

An eBay spokesman said: “Skype has not performed as well as we would have hoped. And we are disappointed about the impairment charge. But we still believe Skype to be an extremely valuable asset.”

He said of the bonus payment: “We think it is reasonable given the progess that Skype has made and also looking at the trajectory of the active user base. It is a one-time payment.”

Under the terms of the Skype founders’ earn-out agreement, the earliest they could have received payments would have been next year.

Skype allows users to talk to each other online, through their computer, as if they were on the telephone. While calls between Skype users are free, the company makes money by charging for calls made from Skype to ordinary landlines and mobile phones.

The spokesman said that talks regarding Mr Zennstrom’s resignation as chief executive had been going on for some time, but that both parties believed it was “the right time to happen”.

While Skype has shown significant sales and subscriber growth since it was acquired by eBay, that rate of growth has been slowing.

In the second quarter of this year, Skype reported revenues of $90 million, up 103 per cent on the same quarter the year before.

That rate of revenue growth had slowed compared with the 123 per cent rise in the first quarter of the year and the 164 per cent rise in the last quarter of 2006.

The key challenge for Skype has been to encourage its customers to use more services that are not free and improve the profitability of business from those users.

During eBay’s second-quarter results in July, Meg Whitman, the chief executive, signalled her frustration: “Skype is not where we want it to be in terms of user activity. This will require increased attention and focus from the leadership team.”

Aaron Kessler, an analyst at Piper Jaffray, the US investment bank, said: “The problem for them has always been trying to get their 200 million users to pay for services. They haven’t really figured out a way to monetise their clients – they haven’t introduced new services such as search engines.”

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