Online auction site eBay announced Tuesday that it plans to spin-off internet voice communications provider Skype in 1H10. Skype was purchased by eBay in 2005 for ~$2.6 billion, and the company generated sales of $551 million in FY08 (+44% y/y) with an operating margin of 21%. Skype's user base reached 405 million at year end 2008 and management expects revenues to nearly double to $1 billion by 2011 (22% CAGR). Based on these projections, we think that Skype could command a market value of $3-$5 billion; assuming eBay were to sell a 15%-20% stake would imply a deal size of $450 million to $1 billion.
While the company stated that timing would depend on "market conditions", we believe that the deal would garner strong investor interest because of the company's size, profitability and growth prospects. To that end, Skype would mark the largest growth technology company to go public since VMware in 2007 ($957 million) and Google in 2004 ($1.7 billion).
