eBay slashes Skype valuation by half

EBay has written down the value of its Skype investment by almost half.

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eBay has written down the value of its Skype investment by almost half.

The move, which wiped £700m from the value of the auction site’s investment, coincided with Skype's co-founder Niklas Zennstrom stepping down as CEO of the business unit.

Another senior eBay executive Henry Gomez, who moved to the Skype divison two years ago, is returning to the main eBay operation as a senior vice president for corporate affairs.

Zennstrom will become non-executive chairman of the board of eBay’s Skype unit.

Michael van Swaaij, eBay's chief strategy officer, is stepping in as interim CEO until a permanent replacement is hired, eBay said.

eBay acquired Skype, a provider of Internet telephony services, in October 2005 for approximately £1.3bn, plus an optional further payment of £840m that was dependent on achieving certain goals. In the end the auction site paid out just £261m extra.

From the start, analysts have questioned the logic behind the acquisition, suggesting that eBay would have a difficult time recouping its investment in Skype to boost interactions eBay among buyers and sellers.

In the second quarter, ended 30 June, Skype's net revenue hit $90m, up 103% compared with the same quarter in 2006. Meanwhile, registered user accounts grew 94% to 220 million.

However, eBay CEO and president Meg Whitman, discussing the second quarter's financial results in July, said that, despite its revenue and user growth, Skype hasn't achieved the desired level of "user activity".

In August, Skype suffered a widely publicised and embarrassing outage that lasted about two days and left millions of users fuming worldwide and many openly questioning the stability of Skype's technical platform.

The Skype management changes aren't due to the unit's financial performance, said eBay said. Zennstrom decided to step down as CEO of his own accord in order to focus on other projects. Gomez was asked to return to eBay and take on new responsibilities.

Skype will try to boost revenue by exploring broader e-commerce options, possibly within services like SkypeFind, in which businesses are listed and recommended, and SkypePrime, a service for selling advise and expertise.

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