Skypenomics and a conference call roundup
The most common question I'm asked (after "Is there really enough to write about Skype?") is "How will Skype make money?"
Skype is clearly making money the old fashioned way: selling phone minutes. And doing very well, with a run rate that could lead to $300-400 million sales this year.
But that's not the breakout business, the business that will eclipse eBay's stores.
Simply, Skype helps people sell intangibles to each other the way eBay helps people sell atoms to each other. The intangibles markets are much larger than the goods markets, a humongous opportunity. Few companies have mastered the art of making those markets work online, but Skype is trying to learn, with Skype Find and the Skype Prime Beta and more services to come. Do you believe we live in an information, knowledge, entertainment, and service economy? Skype looks like a strategic investment.
The best observations on eBay's Q1-2007 conference call.
"eBay isn't saying how many of those users became regular Skype users after they signed up."
"The rapidly increasing popularity of cable "digital voice" service from companies like Comcast and Time Warner Cable could be taking its toll on Skype's growth."
"I may have to shelve my initial skepticism about eBay's Skype purchase if this growth continues. I'm still a few $100 million in revenue from that point, but getting closer."
"How much Skype is adding to the bottom line is unknown."
"The company doesn't provide figures to show how many of those subscribers are active."
"Assuming Skype is on track to generate $400 million in revenue during 2007, that deal, widely criticized for its bubble-like price tag, looks like a good thing for the online retailer, even if plans to use Skype for click-to-call selling activity haven't panned out yet."
"Long-term margins for Skype we've pegged at the 20 to 25 percent rate over time,' says CFO Bob Swan, but that's going to come more from turning it into a tool for e-commerce than making a profit by reselling telecom voice minutes."
Skype Journal's earlier coverage:
- Q1-2007 Is Skype's First Profitable Quarter
- Join the New Prediction Market for Skype Q2
- Skype financial's: a few more notes on the data
- Questions Raised by Q1 Numbers
Technorati tags: ebayinc, ebay, skype, financials, margins, economics, skypenomics, profit, stats, statistics, subscribers, accounts
Comments
Although revenue growth has been steady at Skype, the operational data doesn't look as strong. Total user growth was impressive year-on-year at 107% but has been falling steadily for five quarters. Skype to Skype minutes increased just 11% year-on-year to 7.7 billion minutes and sequential growth showed just 1% growth on Q4 2006. Therefore, more users are spending less time using the system. Given that we estimate that approximately one sixth of users are regular users (at least once a week), there is now additional pressure to grow an active user base.
Slightly surprising is that SkypeOut minutes were stagnant from Q4 2006 to Q1 2007 at 1.5 billion minutes. Although the Q1 2007 figure is 131% growth over the year this at first sight might appear to be a key concern as the service is a key revenue generator for the company. We have to assume that this metric excludes calls made under the new SkypePro service (which are probably 'unmetered') - if so it means that there has been some success in converting SkypeOut users onto flat-rate packages, but this only covers domestic calling.
The standstill in SkypeOut minutes is also partly explained by last year's promotional activities in North America and Asia. In an attempt to increase usage outside of its European home market, free calls to Mobiles and landlines were offered. In Q4 this resulted in a 36% increase on SkypeOut minutes from Q3, a surge in growth on previous quarters. We will need to see further quarterly data to understand the trend rather better.
Skype is now coming up against both traditional telcos and specialist VoIP providers and its rapid growth is diminishing. It reacted in January by announcing the SkypePro flat-rate package and a SkypeOut connection charge. We felt at the time that they were a necessary and shrewd move (see EuroView Daily, 19 January 2007). We expect Skype to make further moves to sustain revenue growth because with a long-term trend in growth of subscriber acquisition more effort must be made to monetise the existing user base. One possibility might be a broader SkypePro type of package for International off-net calls, essentially following the market trend of other VoIP players.
Posted by: hapkido | April 22, 2007 06:11 PM