Ebay cuts back its value of Skype

Skype was bought by eBay in September 2005

EBay has conceded that it paid too much for internet telephony service Skype - dramatically writing down the value of its investment.

The online auction firm said Skype was worth $900m (£450m) less than it paid for it and set aside $530m to meet future pay-outs to some shareholders.

Together that amounts to a loss of value of $1.43bn, compared to the $2.6bn price paid for Skype in 2005.

Skype founders Niklas Zennstrom and Janus Friis have quit as executives.

"I think this is a testament that the Skype franchise is not worth as much as eBay originally thought," said Youssef Squali of the brokerage Jeffries & Co.

Skype generated only $90m in revenue in the three months to the end of June, eBay said.

Other projects

At the time of the purchase, eBay had said it may pay up to $1.7bn on top of the $2.6bn, depending on performance.

News that this would not happen sent its shares up 1.6% to an 18-month closing high.

If you take Skype out of the equation, the rest of the eBay business seems to be doing great again Steve Weinstein, Pacific Crest Securities

Analysts said that this also reflected the greater flexibility eBay may now have, following the change in personnel.

However, eBay said it might pay Skype shareholders another $195m, but only if it sells 50% or more of Skype before the end of March 2008.

Mr Zennstrom, who was chief executive of Skype, will become non-executive chairman and is expected to spend more time on other projects.

After the Skype sale, he and Mr Friis founded an online video company called Joost.com.

Joost, which had previously only been available by invitation, made its software freely available on Monday.

Analysts said that while Skype had not made a lot of money, eBay itself remained a strong business.

"If you take Skype out of the equation, the rest of the eBay business seems to be doing great again," said Pacific Crest Securities analyst Steve Weinstein.

"EBay management has found ways to re-accelerate the core (auctions) market. Lots of its businesses are doing extremely well."