So everyone finally agrees on what many have beensaying for the past two years: eBay ( EBAY) paidtoo much for Skype. eBay's capitulation on that point -- underscored bya write-offequal to more than half what the deal cost inSeptember 2005 -- has ended that debate. But some key questions remain. A few of them are best addressed in the casestudies that will be rolling out for months to come:how to ensure that the disruptive new business you'rebuying can be monetized; the dangers of overpaying fora flavor-of-the-month start-up; integrating a companywith a different culture into yours without spurringan exodus; the myth of "synergistic" acquisitions,etc. Such academic pursuits will keep business schoolstudents weighed down with reading for years to come.But for the purposes of the stock market, there arefour more immediate questions facing eBay -- and theInternet sector in general: Can eBay's stock rise even further now that the Skype cloudis starting to clear? The write-off is a bitter pill for eBay to swallow, but at least it willgo down fast. The company is taking a $1.43 billioncharge related to the Skype purchase, but thosecharges are like Wall Street's version of a confessionbooth. Once you come clean, your sins are absolved andyou can get on with your life. The idea that eBay had overpaid for Skype was onethat seemed to color every single earnings call sincethe acquisition was announced, a dark tint that spilled over to itsmarketplace and PayPal business.
Starting this month, when eBay is slated to reportits third-quarter results, the Skype unit -- whichaccounted for less than 5% of all eBay's revenue inthe second quarter -- will be less of a distraction. Soinvestors may start to notice that
keymetrics in the marketplace business are rising. In fact, that's one of the ironies of the Skype hand-wringing: eBay shares have climbed about 20% since late August, and now sit near a 52-week high. With Skype moved further to the background, even more attention may focus on the company's marketplace strength. eBay's filing with the Securities and Exchange Commission on the $530 million in so-called earnouts -- paid to Skype's founders and investors togive up the $1.7 billion bonus pledge without a fight -- hints that more payouts could be lurking. eBay says it will pay them another $200 million if it sellsa controlling stake in Skype before March 31, 2008. This may be a coded way of saying eBay is leavingopen the option of putting Skype on the block afternext March. That would further cheer investors whohave been griping about the Skype deal all along. Once Skype ceases to be overvalued, can itstill help eBay? The answer here is a small yes.One example of how it could work is Skype Prime, whichlets experts cheaply set up video chats to offer professional advice and tutoring, even around the world.
The bigger question for eBay investors is whetherthese new ideas will turn into real revenue streams.There probably is some potential for Internet telephony to mate withe-commerce, as eBay has long maintained, but it'slikely to take several more years to become a bigcontributor to eBay's bottom line. Wouldn't eBay be better off just sellingSkype? If Skype becomes a drag on overall profit ormargins, eBay will probably think hard about it. ButSkype has been profitable for the last two quarters. Then there's the question of who would buy Skype. Acable company? A telco? Google ( GOOG)? That's harder to say.Given the integration that's happened so far, it's unlikely eBay would want to sell it off entirely, but would keep a substantial minority stake. That couldmake a sale even tougher. Will the revaluation of the Skype affect howother blockbuster deals are priced? Sadly, it's not very likely. Just look at Nokia's ( NOK) $8.1 billion
pricetag for navigational software maker Navteq ( NVT). The deal is worth14 times the revenue that Navteq brought in lastyear and 74 times the net income. Granted, that's notmuch of a premium over where the market had beenvaluing Navteq, but it's also a reward forinvestors who helped bring Navteq to that high price. Nor is eBay's Skype write-off likely to dent thehigh valuations that have been extrapolated from Microsoft's ( MSFT) rumoredpurchase of a 5% stake in Facebook. The presumed valuation has less to do with fundamentals than with the demand fueled by hype. As long as hype is pricing deals, we won't see thecold reality behind eBay's repricing of Skype havingmuch of an effect elsewhere.