Skype Becomes Problem for Ebay

Posted on October 1, 2007

Ebay Inc. is acknowledging problems with its Skype Internet telephone division. Niklas Zennstrom is stepping down as CEO of Skype and eBay ist aking a $1.4 billion charge. Bloomberg says most of the charge will go to writing down the value of Skype.

EBay Inc., the world's largest Internet auctioneer, will take a charge of more than $1.4 billion, most of it to write down the value of its Skype Internet telephone division. It also said the unit's co- founder, Niklas Zennstrom, quit.
EBay, acknowledging that Skype hasn't performed as expected since acquiring it for $2.6 billion in October 2005, said in a statement today that it will write down the value of Skype by $900 million in the third quarter, as well as take an additional charge of $533 million to pay former shareholders under a provision of the takeover agreement.
Some analysts criticized the company for paying too much for the then-unprofitable Luxembourg-based startup, which allows people to make calls over the Internet. EBay Chief Executive Officer Meg Whitman sought the purchase to improve communications and quicken transactions on the auction site. Skype's second-quarter revenue was $90 million, 4.9 percent of EBay's total.

eBay paid $2.6 billion for Skype and at the time many analysts thought the acquisition was too expensive. It was also confusing because it was unclear what eBay would do with Skype. They now have a webpage that explains how eBay members can use Skype.

EBAY