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Skype Rolls the Video

eBay's (EBAY - Get Report) Skype unit set plans to roll out video phone service.

Though the company's voice over Internet phone service did receive positive reviews in three big papers Thursday, the announcement didn't much excite investors. eBay's shares rose 53 cents to $45.34.

During a presentation at a Credit Suisse First Boston Conference, CEO Meg Whitman reiterated her position that acquiring Skype will help eBay expand into businesses not necessarily tied to its auction site and boost existing services such as PayPal.

With users in 225 countries and territories, Skype has developed a loyal following with very little advertising. Skype claims that its service is the fastest-growing communications application, adding more than 150,000 users per day. It has been downloaded more than 212 million times, according to Skype's Web site. Skype's basic service is available for free.

Though Microsoft (MSFT - Get Report) and Yahoo! (YHOO - Get Report) also offer video chat services, technology columnists said they were impressed by Skype's offering. "This may be the long-awaited application that brings video telephony to the masses, especially now that webcams can be bought for as little as $30," wrote David Culker of the Los Angeles Times.

But for investors to show enthusiasm for the service, eBay will have to demonstrate how the deal helps its bottom line. Shares of the online giant have slumped this year as rivals such as Yahoo! and Google (GOOG - Get Report) have soared amid investor concerns about the Skype acquisition and eBay growth rates. Some investors have said the $2.5 billion-plus price tag for Sykpe was too rich.

eBay expects the Skype deal to shave a penny from fourth-quarter earnings on a pro-forma basis, and to trim 4 cents on a GAAP basis. For the full year 2006, the transaction is expected to dilute pro forma and GAAP earnings per share by 4 cents and 12 cents, respectively, eBay has said. Skype's acquisition will be break even on a pro forma basis in the fourth quarter of 2006.

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