Skype Files for $100 Million IPO

Skype, a Luxembourg-based online communication platform, has filed for a $100 million IPO. It plans to trade on the Nasdaq, with Morgan Stanley, Goldman Sachs and J.P. Morgan serving as co-lead underwriters.

The company reports a net loss of $269 million on $626 million in revenue, for the year ending November 18, 2009. This compared to $41 million in net income on $551 million in revenue for the year-earlier period.

November 18 was the day that eBay sold a 65% stake in Skype for $1.9 billion, to an investor group that included Silver Lake Partners, Andreessen Horowitz and Canada Pension Plan Investment Board (CPPIB). For the six months ending June 30, 2009, the company reports $41 million in net income on $551 million in revenue. www.skype.com

UPDATE: Here is a Reuters story on the offering:

NEW YORK, Aug 9 (Reuters) – Internet phone services provider Skype filed to raise up to $100 million through an IPO, hoping that its wide name recognition and rapid growth will outweigh concerns that few of its customers actually pay.

Analysts said the filing could be a bid by Skype’s private equity owners to recoup some of the $2 billion they paid for control of the company in November 2009, or an effort to entice other technology or telecom companies into a deal.

Skype is one of the latest in a parade of portfolio companies that private equity investors are seeking to take public. Last week, private equity-backed Dutch chipmaker NXP Semiconductors NV NXPI.O went public but raised 28 percent less than planned.

Also in the pipeline are hospital operator HCA Inc, which filed for an IPO of up to $4.6 billion; Nielsen Holdings BV, known for viewership ratings that often determine the fate of TV shows, which filed for an IPO of up to $1.75 billion; and Toys R Us, which filed for an IPO of up to $800 million. [ID:nN06229492]

“I don’t think it’s a big surprise they’re going public because the investors who bought it from eBay were going to want to cash out on their investment at some point,” said Morningstar analyst Larry Witt.

Skype may be hoping to sell to Internet players such as Google Inc (GOOG.O) or Yahoo Inc (YHOO.O), although it remains unclear what kind of interest it would generate, said Chris Watts, an analyst with Atlantic Equities.

Josef Schuster, founder of Chicago-based IPO research house IPOX Schuster LLC, said Skype’s founders, Niklas Zennstrom and Janus Friis, might be interested in buying the company, possibly with a consortium of Scandinavian telecommunications companies.

So far Skype has proved a rocky investment. The company was founded in 2003 and acquired by eBay Inc (EBAY.O) in 2005 for $3.1 billion. Last November EBay sold a majority stake in Skype to an investor group that included Silver Lake, Canada Pension Plan Investment Board and Andreessen Horowitz for $1.9 billion in cash and a $125 million note. EBay retained 30 percent.

Now, less than a year later, Skype’s backers are putting it up for an IPO.

The filing did not specify which shareholders would sell in the IPO or how many new shares would be sold.

LONG-TERM PROSPECTS?

Luxembourg-based Skype, which provides free online video and text conversations, has drawn a large number of users of its computer-to-computer services — 124 million a month on average. But only a small percentage of its subscribers are paying customers, using Skype to make calls to traditional phones at discounted rates.

Watts said that while Skype’s growth has been impressive, investors eyeing publicly traded shares would be cautious about its prospects for revenue growth due to the size of its base of nonpaying customers.

“That’s the strongest point they have but it’s also their problem,” Watts said. “It’s a very, very difficult business to value. The issue for most people is going to be: ‘yes, they’ve got a very substantial subscriber base but a lot of their subscribers just aren’t generating a lot of revenue.'”

The fate of Skype’s Internet telephony rival Vonage Holdings Corp (VG.N) could also scare investors. Vonage shares debuted at $17 per share in May 2006. On Monday they traded at $2.34 on the New York Stock Exchange.

But Watts noted that Skype’s video and texting service distinguishes it clearly from traditional phone companies while Vonage’s service is more like that of regular phone operators.

“A lot will be contingent on valuation,” said Watts.

Only 8.1 million, or 6.5 percent, of Skype’s monthly users were paying customers in the second quarter of 2010, the company said it in the filing.

Skype had 560 million registered users in the first half of 2010, who logged 95 billion minutes of Skype voice and video calls, according to the filing.

Net revenue rose 25.1 percent to $406.2 million in the first half of 2010 from a year earlier. Skype had net income of $13.1 million in the six months that ended June 30.

Skype in its IPO filing said that it had formerly posted losses and that it may not be able to maintain its profitability.

Underwriters on the IPO are being led by Goldman Sachs & Co, JPMorgan and Morgan Stanley. The filing did not specify the number of shares that would be sold or give an expected price range. It did say that the company expects to trade on Nasdaq.
By Sinead Carew and Clare Baldwin
(Additional reporting by Suzannah Benjamin in Bangalore and Liana B. Baker and Matthew Lynley in New York; Editing by Maureen Bavdek, Dave Zimmerman, Phil Berlowitz)