Skype looks to raise $100m in an IPO

Skype is planning to launch publicly on the Nasdaq, the Luxembourg-based internet telephony company announced on Monday

The company is looking to raise up to $100m (£63m), according to a preliminary filing with the US Securities and Exchange Commission (SEC). The number of shares in the initial public offering (IPO) and the price range for those shares was not revealed in the filing or in Skype's statement, however.

The majority of Skype was sold by eBay in 2009 for $2.75bn, with the buyers including Skype's own founders. Prior to the sale, eBay had itself planned to launch a Skype IPO during 2010. eBay originally bought Skype in 2005 for $2.5bn, with a view to integrating the voice service into its online auction mechanisms — a plan that never came to pass.

The preliminary IPO prospectus in Skype's Form S-1 registration statement lays out Skype's plans for growing beyond its current user base and revenues. According to the filing, Skype had 124 million average monthly users in the second quarter, of whom 8.1 million were paying users — the company relies on the sale of SkypeOut call credit for around 86 percent of its revenues.

These figures shows significant growth since the same quarter a year ago, when Skype had 91 million average monthly users and 6.6 million paying users. Net revenue was up 25.1 percent over the same period, reaching $406.2m in the first six months of 2010.

"We aim to grow our user base and increase the portion of our users who use paid products by supplementing our viral marketing with new marketing initiatives and strategic relationships," the company said in its prospectus.

More than 152 billion minutes of free Skype-to-Skype calls — 40 percent of which were video calls — were made in the year ending 30 June. "We believe this represents a meaningful opportunity to increase our revenue from alternative monetisation models, including advertising, gaming and virtual gifts," Skype said.

The company also revealed plans to attract more business users.

"We believe there is a significant opportunity to better serve the communications needs of the small and medium enterprise segment, as well as larger enterprise customers, by focusing on user needs in this market and developing additional products specifically tailored to business users," the company wrote, without giving more detail about the planned offerings.

In the filing, Skype repeatedly called its own user figures into question. Despite quoting a figure of 560 million registered users — up from 397 million the year ago — it said two factors made it likely that the real tally was lower. These were the fact that some legitimate users may register more than once and that the total does not exclude people who are actively blocked by Skype on suspicion of fraudulent activities.

Additionally, the number of registered users includes 20 million who registered automatically with Skype as part of the MySpace registration process — an arrangement that allows free registration through the social-networking site. It will end in November. Skype said it believes "users that have registered through MySpace are infrequent users of Skype products".

Elsewhere in the filing, Skype considered the idea of in-client advertising, noting that users may "respond negatively" to receiving ads while using the service.

The company also saw possible challenges to the company from large online providers, naming Google in particular.

"If internet companies — particularly the large internet companies with well-known brands and large user bases — choose to focus more of their resources on their communications products or otherwise enhance those products or if their users adopt those products instead of ours, this could, among other things, reduce the market for our products, increase competition for users and price competition or make our products obsolete, which could decrease our ability to attract new users or cause our current users to migrate to communications products offered by internet companies," it said.

"For example, Google has recently acquired Global IP Solutions, which has developed a real-time audio and video-over-internet technology similar to ours," the company added. "Google may use this technology to compete against us."

An additional worry for Skype is the ongoing opposition to its trademark registration in several countries from BSkyB, because of the "Sky" part of Skype's name. Skype has won this battle in Switzerland and Turkey, but in July it received a negative first instance decision on the matter from the European Union trademark registry. Skype has said it will appeal that decision.

Those investing in Skype should not expect quick returns, the company said. "We do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. We anticipate that we will retain all of our available funds for use in the operation and development of our business," it said in the filing.