eBay Acts Like a Grownup

This column was originally published on RealMoney on Sept. 12 at 12:07 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Well, the rumors were true. Last week The Wall Street Journal reported that eBay(EBAY Quote) was in talks to buy VoIP-provider Skype for $2 billion to $3 billion, and the New York Post reported the price was going to be somewhere around $5 billion.

The final deal is for eBay to buy Skype for $2.6 billion in cash and stock with another $1.5 billion coming over the next four years based on performance incentives. This deal has implications for eBay, for Internet stocks in general, and for other VoIP plays.

This remains a highly unusual deal for eBay for the reasons I mentioned last week:

• As opposed to PayPal, the acquisition of which was highly complementary to eBay's business, Skype really has nothing in common with the eBay auction business. PayPal was already a vendor for eBay and many of eBay's customers were paying for purchases using PayPal. The acquisition tightened the relationship between the shopping experience and the paying experience and brought it all under one roof, allowing a reduction in costs for eBay.

• Skype is not a mature business at all and it's unusual (as in it's never happened) for eBay to pay such a large price for an unknown quantity. Skype had $7 million in revenue last year and some estimates say it can make up to $200 million in revenue by 2007, but the reality is -- who knows. And, still, with $200 million in revenue and a $4.1 billion potential acquisition cost, it doesn't really add up.

For a long time eBay has avoided the M&A momentum that swept up many of its competitors and fellow dot-com companies in the late 1990s and early 2000s. Meg Whitman, had remained disciplined and stuck to the business plan that had kept her company profitable and growing from day one, avoiding the M&A pitfalls.

However, mature companies face different problems. This acquisition suggests to me that eBay's auction business is mature and will not grow at the blistering pace (66% in 2003, 40% in 2004) it once did.

Furthermore, with $2.75 billion in cash and spinning off more cash each year, eBay is stabbing for ways to get the cash out the door in exchange for businesses with high return on equity.

Skype has 50 million users, eBay has 116 million users. I do think the one "synergy" that exists is for the companies to crossmarket the services to the other's customer base and I do think the company will be successful at this.

I do not believe the hype that "commerce = communication" and that adding Skype will make it easier for customers to use eBay's auction services. That's what is being claimed now and I just don't take that very seriously.

Whitman said, "Communications is at the heart of e-commerce and community. By combining the two leading e-commerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net." I really hope she doesn't think people are buying that type of hype and hope anymore. It's just not true.