Skype Registers for IPO
August 10, 2010
- The IPO document is 581 pages. Many of the fields for amounts and share quantities are still blank.
- Skype was founded in 2003.
- In 2010, Skype had 560 million registered users, a bit more than half the number of Facebook members.
- Skype claims the same “network” effects as Facebook, where the service becomes more valuable as more people use it.
- A group of private investors purchased Skype from eBay in November 2009, including Marc Andreessen’s venture capital firm, Andreessen Horowitz. These investors received a $60 million “success fee” for saving Skype from the rapine ways of eBay (along with $1.3 million for “out-of-pocket” expenses. Legal and advisory fees for this transaction totaled an astonishing $37 million. The purchase price was $2.7 billion.
- Management services agreements exist with current owners where these owners will provide certain unspecified management, financial, consulting, and advisory services for as yet unspecified sums of money.
- The capital structure looks to be immensely complicated.
- Sullivan & Cromwell is providing legal representation to Skype. Richard Morrissey is head of the firm’s M&A group and is based in London. David Rockwell is a London partner with experience in European corporate finance.
- Chief underwriters are Goldman Sachs, JP Morgan, and Morgan Stanley. Kevin Kennedy of Simpson Thacher represents the underwriters.
- Growth rates and absolute growth numbers – measured by registered users, connected users, paying users, and revenue – have diminished in the past year.
- Given the flattening of the growth curve, the most significant pillars of Skype’s business model going forward seem to be advertising and business use.
- Net income in the first half of 2010 fell to $13 million, compared to $22 million in the first six months of 2009.
- Skype carries about $268 million in cash and current assets and more than $1 billion in short-term and long-term liabilities.
- One of the risk factors declares that the “registered users” number employed by Skype overstates the number of unique individuals who register to use its products – due to multiple registrations by users and to fraudulent activity. Skype also includes 20 million automatically registered MySpace users that they believe are infrequent users of Skype services.
- “Connected user” numbers are also misleading, as they include people whose computer automatically starts the Skype service whenever it is turned on.
- As a global service, compliance with multiple telecommunications and intellectual property laws is challenging.
- Skype incurs signficant charges from identity theft and credit card fraud.
- The list of risk factors is quite substantive (ie, non-generic) and very long.
- Skype experiences revenue seasonality, with lower use during warm weather months and heavier use during the winter holidays.
- About 7 percent of Skype’s connected users generate most of Skype’s revenue.
- As of June 30, 2010, Skype employed 839 people.
- This initial S-1 does not yet include executive compensation details.