Surpringly, I discover this morning that one of my nightly posts has generated some comments on the blogosphere, and yesterday a journalist kindly pinged me to comment more on it. Actually, I was posting about why I liked the Skype business so much, and offered a back of the enveloppe calculation of their yearly revenue potential. Extract of my post:
"- market size = well its twice as good here: there are about 900m internet users, and I suppose 99% would have a phone, hence it's a nice market of almost 900m phone users. Imagine an ARPU of 20€/month for telephony * 12 months = 213,8 b$ ! And if only 10% ever get on VoIP, that's still 21,4b$ addressable market. With at 20% marketshare, that's still potentially a 4b$ turnover company. No need for great maths, the potential is there. You would of couse need to adjust that for a percentage of paying customers on Skype (10%), a skype ARPU vs. a normal telco ARPU (x3 ?), and that Skype will charge 10% of telco prices. You get about a 130m$ company. Play with any of the parameters to adjust them to your risk profile."
That is VERY different from assessing what the right valuation should be (I should have written 'You get about a 130m$ company IN REVENUES': to say the least, a DCF analysis would capture a number of additional years of margin plus a terminal value that would include a number of things, including technology, brand, customer base, a set of contracts with telcos around the world. As one of my readers very rightly points out:
"I thought the implication of my post was clear - that $130m might be a ballpark figure for potential of the SkypeOut business alone - but that there was a lot not captured by it, i.e., SkypeIn, licensing revenues, revenue shares, the "option value" of a community this large, and other intangibles. My gut feeling is that a figure 3 - 4 times this might be more appropriate, but that the issue won't be relevant until the business is much bigger and more mature."
He also wrote earlier:
"Rodrigo has had a crack at the answer in his interesting blog. He comes up with a putative figure of $130m, which I work out to be about $130 per SkypeOut customer. The problem is we don't have any way of knowing what the average ARPU per SkypeOut user is. I have spent EUR15 to date, but then again I use Skype almost exclusively to communicate with other Skype users. More intensive users, especially highly nomadic individuals, would probably generate an annual ARPU of $75 without much effort.
All-in-all, if SkypeOut ARPU across the 1m user base was on the order of $40 per user, then a $130m valuation would be slightly over 3x annual SkypeOut revenues. By contrast Yahoo! currently trades on just under 13x prospective revenues, and that's after some fairly savage share price performance in recent days. It is also important to remember that we need to take into account SkypeIn revenues (I am happy to pay EUR10 per quarter for a US number, but I would be surprised if Skype was paying more than $2 - 3 per quarter to supply it), licensing revenues, etc., for which we have no data points to work from - yet. When they become available, we'll be able to put more meat on these bones.
For the record, I have tried to go through official channels to gain more insight, visiting UK Companies House (which maintains financial statements from UK companies), to find that a company known as Skype Limited is somewhat behind in its filings."
But, this sounds like a nice challenge, I'll try to model a right valuation for the company and offer it to you for challenging thoughts (but not now, I'm still in the middle of something else ;). As a matter of fact, I had a great discussion about it and some other things recently with Hans-Jürgen Schmitz of Mangrove Capital Partners, one of the early investors in Skype. The only thing I can tell you, is that there is SOOOOOO much ahead for this company, that...
LOL. Give yourself a treat. Get a Skype account, a SkypeIn number, and start using SkypeOut ;D