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From the estimates I have seen, Skype generates $250mm in EBIT per year. That would mean that Microsoft is paying 28x earnings. If we want to approximate EBIT
by jakarta 15y ago
From the estimates I have seen, Skype generates $250mm in EBIT per year.
That would mean that Microsoft is paying 28x earnings. If we want to approximate EBIT as free cash flows (not the same, but this is back of the envelope) and assume a 10% discount rate, to break even Skype would need to be growing EBIT at 6.4% annually for the next 10 years or so.
I don't know how achievable that really is, but maybe they could test raising prices to get some of that growth.
- netcan 15y agonikcub has a comment on this thread that convincingly puts Skype "gross profit close to $500M+ for YE 2011." I was going off an article that had skype revenue/profit as 859.8/20.6 for 2010 and negative the year before. I assume that the accounting tricks of having been bought by a PE firm that he mentions are responsible for the discrepancy. If true, P/E is < 20, not bad. Still, I doubt that is really what MS is after.
- riams 15y agoThat is, if they keep Skype as it is. There are, however, more than just financial reasons for this acquisition. 2 reasons off the top of my head: 1. Microsoft will gain from Skype's synergy with their existing portfolio. Think Skype + Live Messenger or Skype + Windows Phone 7. 2. Block competitors from purchasing. Microsoft, Google and Apple (to some extent even Facebook) have businesses that are increasingly overlapping. Skype in the hands of a competitor becomes an alternative cost for Microsoft.
- encoderer 15y agoGrowth that high -- 6.4% -- for the next decade would be huge for Skype and make this not just acceptable but a home run for microsoft. At that 6.4% rate skype has twice the earnings in 10 years it has today.