Saturday, May 21, 2011

Is Skype worth $8.5 billion ?

There has been much of a debate on whether Skype is worth the amount Microsoft bought it for. Here is my side of the analysis.

Skype has a total user base of 663 millions. Of the 663 million users, only 6% are pay users. These 6% generated revenue of $860 million in the year 2010 for Skype. Skype was bought at $8.5 billions by Microsoft.

Now lets talk about another web craze, Facebook. Facebook has a global user base of 600 millions. The revenues for 2010 was reported as close to $2 billions. Of this, about $1.86 billions came from advertisement. Currently, Facebook is valuated at $50 billions.

Lets start the comparison :
1) Net worth per user :-
a) Skype :- $12
b) Facebook :- $83

2) Net worth per Revenues :-
a) Skype :- 9.8
c) Facebook :- 25

Apart from the calculations, when you talk of future growth, there too Skype has more potential than Facebook. Looking at the user growth rate of Facebook, one can see that saturation is very near. So, in the near future, the difference in user base between the two will not change much.

Also, we can see that the major chunk of Facebook revenues comes from Advertisements. On the other hand Skype is fully dependent on the user charges as of now. I expect that to change in the near future.

First, Skype can plunge into the Advertisement business. With the expertise of Microsoft, they can make a big impact. One positive thing is that they are providing free quality chatting services to millions. They would not mind listening to few seconds of advertisement provided they don't have to start paying for the chat services.

Secondly, Skype can use the voice data and analyze it to generate much better advertisement hits. The voice data will give better know-how of the person than the written messages/statuses.
This voice data can be cultivated by Microsoft to use it for improving Bing. In whole, profit for both the entities.

Thus, my view is that the $8.5 billions paid by Microsoft to buy Skype is a profitable acquisition. At least, when compared to the Facebook valuation. If you think that both the giants are over-valued, then you can start fearing of the bubble.

No comments :

Post a Comment