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Ebay on Monday announced plans to spin off Skype communication service provider into a standalone business. Skype has failed to become a truly integrated part of Ebay in the last three and a half years and also failed to show synergies with electronic commercial empire that Ebay runs. Skype’s initial public offering is intended to be completed in the first half of 2010, depending on market conditions.

“Skype is a great stand-alone business with strong fundamentals and accelerating momentum. 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,” said president and chief executive of Ebay, John Donahoe.

The decision to separate Skype is based on a timeline outlined by Donahoe when he became Ebay’s chief exec in April 2008. At the time, the company said it would spend a year evaluating Skype and its potential synergies within the Ebay portfolio before making any decisions about Skype's future. Donahoe also installed a new management team at Skype led by Josh Silverman, which has driven stronger momentum and improved performance. In 2008, Skype generated revenues of $551 million, up 44% from 2007, and segment margins of approximately 21%. Registered users reached 405 million by the end of 2008, up 47% from 2007, and user metrics improved significantly throughout the year. The company recently announced that it expects Skype to top $1 billion in revenue in 2011, nearly doubling 2008 revenues.

It should be taken into account that at the time of the global economic recession a lot of people started to cut their spending and, consequently, started to use more cost-efficient services from Skype. Therefore, for Skype, the financial crisis may not be a negative situation for Skype, thus, new investors should be catious about the IPO and not pay excess for the stock, like Ebay did in 2005.

“[The IPO] will give Skype the focus and resources required to continue its growth and effectively compete in online voice and video communications. In addition, 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,” Mr. Donahoe concluded.

Tags: Skype, Ebay, Business

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