Monday, September 12, 2005
eBay + Skype
Acquired at 2.6 billion/4.1bn with earnouts.
Some deal math: according to my numbers, at total funding of roughly $25 million, that's a 20-25x+ return. That works out to a minimum value/user of $50+ depending on how you wanna slice users (EG, if we discount the current base by 50%, which is probably somewhat fair, since registered users do not equal actives, and you can register multiple names, value/user hits $100ish). But even that minimum is a significant jump from current values in the Web/Media 2.0 space (much higher than MySpace).
The peer production component of my Media/Web 2.0 model spits out numbers very close to the price eBay put on Skype - my valuation stands almost exactly 2 billion, which means a (minimum) 30% strategic/control premium is being paid by eBay.
That's not surprising, because I use numbers close to the above range to value peer production plays. Those numbers are revealed by several market valuations I won't get into here. The strategic rationale, of course, is that peer production has a far stickier and more durable revenue model than other Web 2.0 competitors.
This is cool, because it's almost textbook validation of my model, which tells us a lot of breathless articles right now talking about inflated valuations and big premiums are contradicted by numbers which can be backed up with pretty solid strategic arguments.
More to the point, this is great news for those in the Media/Web 2.0 space - valuations just got seriously amplified (and validated again) by the market.
Why the acquisition? At $72m of revenues, that's a multiple of 36. For comparison, Google's IPO EV/rev multiple was 15. Could Skype get more than *double* Google's revenue growth expectations from the market? I think Skype has gotten a very nice premium from eBay - and I haven't even counted the earnouts.
Not bad for a year or two's work.
Let's hope this makes VC's across the board much less risk-averse, and willing to play with even more cool Web/Media 2.0 stuff.
Will try and talk about some strategy behind this tomo, too busy today... :)
I think the secret of the eBay / Skype deal is really PayPal. It's about rolling PayPal payments into Skype. Letting you IM a tenner to your mate in Leeds, or to a medical consultant in Bombay.
More : http://blahsploitation.blogspot.com/2005/09/bbc-news-technology-portal-bid-drives.html
I did a strategy analysis that borrows from "the atomizing hand" - http://tinyurl.com/apeg5 - hope you enjoy this. Thanks for your great work and insights - they're having a real impact on my work.
FYI - I quote you again in "Link 4" of "The Greater than 2 Manifesto" - a work in progress - http://greaterthan2manifesto.blogspot.com/
Umair, I just posted a bunch of stuff that I found at a few places all together.
Rob Stavis who led the Skype A Round for BVP got a 150X return on his investment. 150X.
I'll let that sink in a bit more.
Anyway, lots of people think that it's more about Paypal than eBay, but I think it's a good fit either way.