EBay, you don’t fool me!
You can fool big finance gurus, you can fool the two newly made billionaires Zennstrom and Friis who sold Skype to you, but not me, because I am a simpleton and I do think simple.
EBay shares are in free-fall: -17% in a month. Everybody is selling because EBay posted losses for the first time since 1999… Tere is just a little detail: those losses don’t exist! Those losses were written by someone on some piece of paper to fool someone else. Reality is that Ebay
Those losses are not dollars. While someone was writing those bullshit (I tried not to use this word, but I am getting angry at whoever invented the stupid write off) losses, wagon-loads of real dollars were entering EBay’s bank accounts.
Those losses are fake because they come from a ridiculous write off:
EBay paid 2.6 Billion dollars to buy Skype. Now some “genius” at Ebay decided $2.6 Billion had been too expensive for World’s leader on VOIP communications. This “genius” decided to write off $ 900 Million from Skype value and had to pay $530 to skype sellers. The write off is just ridic0ulos. Skype is World’s absolute leader in Internet Telephony. Skype has 246 million users Worldwide, growing at fast pace. Skype is market leader for Internet Telephony, a market in great expansion.
Large players are forming alliances with Skype: Nokia is producing Skype enabled telephones, 3 Mobile company is offering skype calls over cell phones.
Skype already had 7% of international phone calls, with leadership in that huge market. Telephony is an industry with revenues probably at least 10 larger than the whole Internet, and Skype is absolute leader in VOIP telephony, which is the telephony of the future.
Considering that Microsoft valued lousy Facebook 15 billion , which isn’t leader in anything and is little more than yet another silly dating site, after Friendster, Myspace, Linkedin and whatever else will be found cool by female and male students in the nex year, how could those blind Ebay accountants say something stupid like: Skype at 2.6 Billion is overvalued.
I am not sure why they did that stuid move, but I have a theory:
When Ebay bought Skype, the contract said they should pay to the two founders
Niklas Zennstrom and Janus Friis and to other Skype shareholders:
$1.3B cash
+ $1.3B stock
+ $1.5B earn-out linked to performance targets set to Skype.
= $4.1B
Now the point is that Ebay’s Meg Whitmann DID NOT WANT to pay the last $1.5B!
How did they manage NOT TO PAY THOSE 1.5 B? Simply Ebay did not help too much Skype to reach the targets, so Niklas Zennstrom and Janus Friis, who had been running Ebay till last month, did not get the 1.5B.
Of course they were angry and they quit slamming the door. I also have suspicions that those targets were not too far. Why? Simple again… there is this little tiny news: “EBay also paid certain Skype shareholders $530 million to settle future obligations”. Why did they pay to “settele future obligations”? Beacause Ebay wanted to avoid one risk:
Niklas Zennstrom and Janus Friis, could have sued Ebay for not letting Skype reach the targets or for not aknoledging that part of those targets had been reached.
To make the supposed “Skype’s disappointment” more believable, Meg Withman also did this ridiculous write off.
But reality is the EXACT OPPOSITE:
1) Skype had 53 million users when Ebay bought it in September 2005 . Skype has 246 million users now
2) Skype was losing money every month at the time of the deal. It is making money now.
In my opinion skype is doing wonderfully. Don’t believe me? then look at those tables from Wikipedia:
| Date | Total user accounts in millions |
Skype to Skype minutes in billions |
Skype Out minutes in billions |
Net revenue USD in millions |
|---|---|---|---|---|
| Q1 2006 | 95 | 6.9 | 0.7 | 35 |
| Q2 2006 | 113.1 | 7.1 | 0.8 | 44 |
| Q3 2006 | 135.9 | 6.6 | 1.1 | 50 |
| Q4 2006 | 171.2 | 7.6 | 1.5 | 66 |
| Q1 2007 | 195.5 | 7.7 | 1.3 | 79 |
| Q2 2007 | 219.6 | 7.1 | 1.3 | 90 |
| Q3 2007 | 245.7 | 6.1 | 1.4 | 98 |
It was reported that 10,140,836 concurrent Skype users were online as of October 30, 2007.[15]
| Date | [16] Users online | Days |
|---|---|---|
| 2007–10-15 | 10,000,000 | 259 |
| 2007–01-29 | 9,000,000 | 82 |
| 2006–11-08 | 8,000,000 | 71 |
| 2006–08-29 | 7,000,000 | 155 |
| 2006–03-27 | 6,000,000 | 66 |
| 2006–01-20 | 5,000,000 | 92 |
| 2005–10-20 | 4,000,000 | 155 |
| 2005–05-18 | 3,000,000 | 93 |
| 2005–02-14 | 2,000,000 | 117 |
| 2004–10-20 | 1,000,000 | 418 |
| 2003–08-29 | 0 | – |
To the question what does Skype have in common with Ebay and Paypal?
I answer:
absolute, uncontested leadership.
- Ebay is uncontested World leader of Internet Auction (which now make real auction look like an historic ruin)
- Paypal is absolute leader in Internet Payments (unfortunately real banks are still alive. Some people still use them to pay 🙂 )
- Skype is absolute leader in Internet Telephony (yea Telcoms are still alive, but in shaky health… Will we still want to pay for their expensive calls when we’ll be able to call each other on Skype mobile for free on our town’s Wifi aceess? )
Ebay is a major player pushing for future lowcost society, where we:
- we decide the price we are willing to pay buying cheap on auction rating sellers,
- we transfer money cheap
- and we call cheap when not for free.
Nothing can stop us, the people, and if a company helps us get what we want, we will push it to success…
BTW…
EBAY is a growht stock and at the same time also a defensive stock:
- It has proven to be defensive during the bubble, as compared to Nasdaq and Dow Jones
- Its business model allows Ebay to perform well even if the economy is so-so. People who want to save money may prefer to buy used on Ebay rather than new in the shops and will definitely want to call free on Skype
Now add all that rosy picture to the fact that Ebay is amazingly cheap now:
- Forward P/E 19.4
- Quarterly Revenue Growth (yoy):30.40%
- Total is Cash $4B, no debts, about 10% of the market Cap: when we buy Ebay, 10% of what we spend is for cash. Excluded the cash, Forward P/E would be 17.5.
I am forgetting all my investing strategies this time! I’m buying Ebay like crazy. As the price goes down I buy more and do everything wrong for this stock that I consider an absolute champion.
When I do so usually Wall Street Gods punish me… Let’s hope it won’t happen this time!
BUY, SELL, KEEP 
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