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: Difference
by malxau on Tue 10th May 2011 16:46 UTC in reply to "Difference"
malxau
Member since:
2005-12-04

I think Microsoft wants to tell anyone that looking at capitalization, the way analysts do now, and revenues per share could be less important that looking at other factors, including who has much money stored in vaults.


And it's showing this by taking money out of its vault and burning it, thus leveling the playing field. This valuation makes its valuation of aQuantive or Yahoo look sane.

Reply Parent Score: 2

RE[2]: Difference
by TBPrince on Tue 10th May 2011 21:45 in reply to "RE: Difference"
TBPrince Member since:
2005-07-06

Buying Skype doesn't seem like burning money out. Rather it looks like buying out a very significative player and yes, for a lot of money. Which is probably part of the plan.

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

Reply Parent Score: 2

RE[3]: Difference
by malxau on Tue 10th May 2011 23:07 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.

Reply Parent Score: 2