RBC: Skype growth may be slowing
AUG. 15 4:26 P.M. ET There are signs the once-high-flying growth rate of eBay Inc.'s Skype division has begun to slow down, RBC Capital Markets analyst Jordan Rohan noted to clients Tuesday.
A recent check by Rohan and associates found that downloads of Skype software are dipping and growth in new users is flattening out.
"Our recent checks indicate ... that the user growth is no longer accelerating," Rohan wrote to clients. "Ebay may need to spend on marketing or offer price promotions to reaccelerate growth heading into 2007. If eBay chooses to do both, margins would fall short or our revised forecast."
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What he found was that Skype, which provides Internet-based phone calling services, is on track to record 51 million downloads of its free software in the third quarter, which he believes is slightly lower than what Skype recorded in the second quarter.
Rohan also writes that Skype will likely add 18 million new users during eBay's fiscal third quarter -- the same number of new users Skype reported in the second quarter.
Due to his findings, Rohan is lowering his 2007 revenue estimate for Skype to $400 million from $475 million.
Rohan has also lowered his price target for shares of eBay to $31 from $32 while cutting his estimate for 2007 earnings to $1.18 a share from $1.20 a share.
Growth at Skype is just one of two major concerns Rohan has about eBay. He also noted that last week, eBay's Korean unit reported that operating margins dipped to 15 percent during the just-completed quarter from 29 percent from a year earlier. Also, revenue was down 1 percent.
eBay spokesman Hani Durzy said company policy keeps him from providing any intra-quarter results, so he wasn't able to comment on Rohan's findings.
He did say, though, that Skype's growth has remained consistent during the first two quarters and that eBay has not changed its 2006 revenue estimate of $200 million for Skype.
EBay purchased Skype last October for about $2.1 billion, with the intention of letting it exist as a standalone business but also incorporating elements into eBay's auctions business.
Since then, eBay, which is based in San Jose, Calif., has been under pressure from the financial community to justify the acquisition price and to generate more revenue from the division.
Shares of eBay rose 70 cents, or 2.9 percent, to $24.90 in late trading Tuesday on the Nasdaq Stock Market.
businessweek.com
(Rohan one of the best internet analysts- ebay may have overpaid pretty dramatically) |
