EBay to spin off Skype next year

EBay is preparing to float Skype as a standalone business

Auction site eBay has announced plans to spin off Skype, floating the VoIP service as a standalone business from early next year.

The announcement follows news that Skype founders Niklas Zennström and Janus Friis, who sold the system to eBay for $2.6bn (£1.74bn) in 2005, are trying to raise capital to buy it back.

"Skype is a great standalone business with strong fundamentals and accelerating momentum," said John Donahoe, president and chief executive of eBay.

Donahoe added that Skype has very little in common with eBay's core businesses, and would be better off on its own two feet.

"This will give Skype the focus and resources to continue its growth and effectively compete in online voice and video communications," he said. "In addition, separating Skype will allow eBay to focus entirely on our two core growth engines - e-commerce and online payments - and deliver long-term value to our stockholders."

Specific timing of the initial public offering (IPO) will be based on market conditions, but the move could make it easier for Zennström and Friis to regain a controlling interest in the company or buy it out altogether.

When Donahoe took the top spot at eBay in April 2008 he outlined plans to spend a year evaluating Skype's suitability within the rest of the company's portfolio, at the same time appointing a new management team led by Josh Silverman.

Skype has being going from strength to strength, meanwhile, generating revenues of $551m (£369m) in 2008, up 44 per cent from 2007. The service had 405 million registered users by the end of 2008, up 47 per cent from 2007, and user metrics improved significantly throughout the year. EBay predicts that this trend will continue, and that revenues will top $1bn (£670m) in 2011.

"Under the leadership of Silverman and his management team, Skype has become a stronger business in the past year, and I expect it will be even stronger a year from now," added Donahoe.

"Skype has accelerating global user growth and strong fundamentals, diversified revenue streams and is competitively positioned in a large market. We expect Josh and his team to continue delivering results as we prepare Skype for an IPO."

Skype is targeting all segments of the market, focusing on corporates with the recent launch of its Skype for SIP beta programme, and on consumers with the introduction of Skype on the iPhone, which saw more than one million downloads within 36 hours.