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eBay Plans Skype IPO

eBay Skype IPO

Online auction giant eBay is planning to take plans its Skype Internet telephony unit public, with an Initial Public Offer planned for the first half of 2010.

The move could mark the final chapter in eBay's (NASDAQ: EBAY) dealings with Skype, the Voice over IP (VoIP) service it purchased in 2005 for $2.6 billion -- and has been struggling to figure out ever since.

While Skype has proven a rousing success -- the unit took in revenues of $551 million in 2008, up 44 percent from 2007 -- eBay never achieved a way to leverage the VoIP firm to help its core auction business.

"Skype is a great stand-alone business with strong fundamentals and accelerating momentum," eBay CEO John Donahoe said in a statement. "But it's clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential."

Donahoe said a Skype IPO would give the unit "the focus and resources required to continue its growth and effectively compete in online voice and video communications."

Earlier this week, speculation had circulated that eBay had been in talks with Skype's founders to buy the firm back. Those talks eventually petered out, according to media reports.

The company provided few details of its plans for the transaction, leaving it as yet unclear how the deal might be structured -- and how much of a stake eBay might retain. It's also not clear how much eBay expects to reap by taking Skype public, though in October 2007, it wrote down about $900 million to establish a more realistic valuation for Skype.

It's also an uncertain move considering the blistering economic climate, which has had a discouraging effect on tech IPOs -- to put it mildly -- with public offerings among technology and telecom firms having dropped in 2008 to a fragment of the previous year's total number.

Still, Skype may not the only firm playing with the idea of going public. Facebook signaled interest in an IPO late last month, dismissing its CFO and announcing a search for a replacement "with public company experience."

Parting ways

Distancing itself from Skype may solve other worries for eBay. The VoIP firm had been one of the most pressing issues facing Donahoe when he assumed the company's top spot in April 2008, replacing Meg Whitman. Almost immediately, Donahoe sought to undo some of the lingering problems surrounding the firm, putting a new management team in place at Skype, and announcing plans to reevaluate its role in the company.

Now, eBay may have a way to disentangle itself from its pricey acquisition.

"Separating Skype will allow eBay to focus entirely on our two core growth engines -- e-commerce and online payments -- and deliver long-term value to our stockholders," Donahoe said.

Still, Skype has enjoyed no small success under Donahoe. The new management he installed at the firm, which is now headed by Josh Silverman, ultimately led to the unit's greater performance.

[cob:Special_Report]eBay said Skype's user base grew 47 percent from 2007, reaching 405 million by the end of 2008. The company also said that it expects Skype to top $1 billion in revenue by 2011, nearly twice its revenue in 2008.

"Skype has become a stronger business in the past year, and I expect it will be even stronger a year from now," Donahoe said. "Skype has accelerating global user growth and strong fundamentals, diversified revenue streams and is competitively positioned in a large market. We expect Josh and his team to continue delivering results as we prepare Skype for an IPO."

eBay also said Skype's most recent effort -- its free application for the Apple iPhone -- has garnered a large following, despite being limited to Wi-Fi connections only, rather than 3G wireless.

The company said the app saw more than a million downloads during its first 36 hours, and the application became the most-downloaded iPhone application in more than 40 markets, including the U.S. Since then, eBay said more than 2 million users downloaded the application from Apple's (NASDAQ: AAPL) App Store, adding almost half a million new users for the service.