Linked by Thom Holwerda on Tue 10th May 2011 08:19 UTC, submitted by porcel
Microsoft So, the biggest acquisition in Microsoft's history. The Wall Street Journal reports - and it has been confirmed - that Microsoft and Skype will announce today that Redmond will buy Skype for $8.5 billion. That's a lot of money for a company that hasn't ever actually made any profits. Update: and it's official: yay on Skype on the Xbox360 and Windows Phone, and this: "Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms." Let's hope this includes Linux.
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RE[3]: Difference
by malxau on Tue 10th May 2011 23:07 UTC in reply to "RE[2]: Difference"
malxau
Member since:
2005-12-04

It was quite [significant] that MS overtook Google and who else? Facebook maybe. Outmaneuvered on money, not talking.


Buying something at the wrong price does not make a victory. Facebook should be very thankful they didn't take on this debt. $8bn in debt at 5% == $400mn/year.

I mean, Skype has revenues of $750mn or so. Just paying interest requires half of that revenue to be profit. But how much of that is profit? Zero. How long does it take to get that $8bn back? Forever, unless the business can be turned around. Skype is only significant in terms of brand - in terms of business, it's a nonexistent player.

So for MS to get its money back, the first thing is needs to do is radically restructure Skype into profitability. I hope there are smart people figuring out how to do that. Even if they can, I struggle to believe that MS couldn't have used its other brands to get that share for less than $8bn. (That's essentially everything MS has lost in all of online services for the last 5 years - see http://www.businessinsider.com/chart-of-the-day-microsoft-online-op... .)

The valuations here are just unhinged from reality. Remember when Rupert Murdoch paid $500mn for MySpace? At the time it was a dominant player with a much larger network and that valuation proved to be extremely optimistic. IIRC it's now written down to $100mn, and even that looks high. It's always very speculative to buy something that doesn't bring in cold, hard cash.

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