eBay Payout $1.4 Billion Charge For Skype’s Loss of CEO
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Niklas Zennstrom, the man behind the new Joost Internet TV startup in recent months, will become non-executive chairman of Skype’s board of directors, it was announced today.
There are times that you have to face your demons, but for eBay’s well known Skype Internet Telephony Software, the disappointing financial performance throughout the year is one too many demons to face.
eBay reported today that Skype CEO and co-founder Niklas Zennstrom has “stepped down” as CEO of the VoIP operation and eBay will incur a whopping $1.4 billion charge related to Skype’s services. As a result of this Zennstrom will become non-executive chairman of Skype’s board of directors.
When eBay announced the Skype takeover roughly two years ago, the online auction company paid $2.6 billion for the VoIP Software company and earmarked another $1.7 billion payout to be based on Skype reaching certain performance goals with the expected payout to take place in 2008 or 2009.
However, in the announcement made today, eBay said it has paid just $530 million “to settle all of its future obligations under the earn-out agreement.”
The eBay announcement noted that the earn-out agreement would be “based upon specific active user, revenue and gross profit targets that were to be achieved in 2008 and the first half of 2009. eBay believes that the ($530 million) payment is reasonable given the progress and anticipated rapid growth of Skype’s active user base.”
At the same time next Monday, eBay said Skype president Henry Gomez will return to eBay as senior vice president for corporate affairs. eBay’s chief strategy officer Michael van Swaaij will serve as acting Skype CEO until a successor is found in a search campaign being conducted by Russell Reynolds Associates.
While Skype has signed up more than 220 million registered users and has paced the exploding VoIP market, it has missed its financial targets. When eBay acquired Luxembourg-based Skype Technologies in September of 2005, it anticipated Skype would generate $200 million in 2006 and long-term operating margins between 20% and 25%. In January, eBay CEO Meg Whitman expressed disappointment in Skype’s financial performance. The revenue for the firm was roughly $196 million in 2006, which to be fair was not too far behind the anticipated year target.
Zennstrom and Janus Friis founded Skype Technologies in 2002. The company quickly staked out a dominant position in international VoIP calling whereby users could call each other free of charge. SkypeOut, a service for Skype callers to call non-Skype users, later debuted, offering prices that are still way below those charged by established telephone companies. In recent months, Skype has offered many additional features for its service.
Zennstrom and Friis founded Joost in January of 2006. The founders labeled it as “the world’s first broadcast-quality Internet television service.” Joost quickly lined up a group of Blue Chip investors, who chipped in $45 million in venture capital in support of the startup venture.
In addition, eBay will write off $900 million in goodwill related to Skype. The writeoff is essentially a formal acknowledgement that eBay paid too much for Skype and now needs to reflect a more accurate value for the business on its books.
We will keep you tuned on eBay’s business fumblings…
So, keep it locked at TechToll!
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