Skype IPO: The Real Communications Business Disruption Adventure Begins

When I interviewed Skype CEO Josh Silverman at CES 2010 in January, I had asked about the timing for a Skype IPO. Josh’s response:

“We’ll see. We don’t have a timeline for it. Our focus is to build a really great company. When we’re ready and the markets are ready, we’ll consider an IPO. At some point investors will want an exit, of course, but they’ re really taking  a long term point-of-view. This is not a quick flip; this is about building one of the great companies of technology.”

Today “long term” was defined as something between nine and fourteen months. Nine months after being taken private by an investment group lead by Silver Lake, Skype announced, through a blog post by Josh Silverman, they had filed a preliminary prospectus for an IPO. With a road show and other pre-IPO activities we’re probably three to five months from seeing the final transaction happen.

The prospectus makes for interesting read about both Skype’s business model and the communications infrastructure transition wrought by new technologies. Key Skype performance data includes:

• 2010 Jan-Jun revenues of $406.2MM vs same period 2009 of $324.8MM, an increase of 25.1%
• “Adjusted” EBITDA increase by 59.3% from $75.2MM to 115.8MM over the same periods
• $37MM in capital expenditures budgeted for 2010 vs $13.5MM spent in 2009

and some interesting user data:

One should really think of “Registered Users” as “Registered Accounts”. Especially with Skype for Business becoming more active, there will be a rise in accounts but lots of reasons for stagnant or dead accounts. (Personally I manage, via Skype Manager, over 25 accounts with about 15 users but really only use two of them for my own ongoing activities. The other users were created for one or more business activities and )

Most interesting are the “connected users” numbers, defined as “average monthly number for the three months ended [on] the date [shown on the x-axis]”. While Skype is showing a current number of 124 million“connected users” for the quarter ended Jun30, 2010  Hudson Barton’s “real users” number – which is more an indication of daily users on line is currently running at about 60 million.

The increase in paying users is the most significant number of interest. The prospectus confirms that SkypeOut represents Skype’s number one source of revenue and this number is the best indicator of how quickly these revenues can grow.

One other interesting metric relates to calling minutes, broken down as”

• Communications services billing minutes (SkypeOut minutes): from 5.0B in H1 2009 to 6.4B in H1 2010, a 28% increase somewhat consistent with the revenue increase, and
• Skype-to-Skype minutes: from 49.1 billion in H1 2009 to 88.4 billion in H1 2010, a 80% increase confirming that “free” really is the key marketing strategy for increasing Skype users and Skype usage.

Bottom line: Skype continues to grow at double digit rates but they are about to enter a phase where marketing activities and business communications services will become vital to sustaining its growth. Yet, regulatory and competitive issues will also become a significant factor and a real test of how willing governments are able to adapt to technological change as opposed to sustaining cost-inefficient legacy telecommunications operations whose fundamental business models are threatened. For the first time, we’ll be able to view quarterly the business success of Skype as an independent business operation.

There’s lots of other interesting marketing information and financial data in the prospectus but that leaves room for additional posts. And the statements re regulatory issues have the makings of several discussions.

Note that while $100MM has been put out as the amount to be raised, it was apparently only used as a metric to assist with determining SEC filing fees. The actual amount to be raised has yet to be announced.

Other posts:

• Dan York, Disruptive Communications: Skype, less than a year after eBay sale, files for $100 million IPO
• Business Insider SAI: Skype Spent $343.8 Million To Acquire Its P2P Software From Founders
• Andy Abramson, VoIP Watch: Skype To Go Public makes a couple of interesing points:

Now, going public brings with it a whole new set of responsibilities, not only SEC quarterly reporting.

For Skype’s lead investors, Silver Lake Partners, this is their opportunity to cash out. For many of the employees at Skype this is their chance for a nice reward for all the hard work they’ve put in over the past year.

• GigaOm: Skype Files for IPO

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