Based on Skype?s historical financial statements we have:
Table 4.8 : Growth in Revenue and Adjusted EBIT
Growth in Revenue and Adjusted EBITRevenue ($) Change in Change (%) Adjusted EBIT Change (%)thousandRevenue($) thousand20062007200820092010Average193,696N/aN/aN/a381,551187,85596.98U1,364169,81344.51q8,903167,53930.39?9,815140,91219.60G.87%N/a110,478N/a162,82847.384,89513.55&4,34742.974.64%
According to the Table 4.4, the growth in revenue gradually gets down over time and
growth in 2010 is 19.6% and the paying-user growth in 2010 is 20.55%. With optimistic perspective about the development of Skype in the near future, I assume that continued revenue growth of 20%(which was what they had last year) will be remained for the next 5 years and a gradual tapering down of growth to 4% in ten years. 4.5.2 Pre-tax Operating Margin and Industry Average
Skype had net revenues increased by 20% from $719 million pro forma 2009 to $860 million in 2010, and Adjusted EBITDA increased by 43% from $185 million in pro forma 2009 to $264 million in 2010. Skype?s net loss in 2010 was $6.905 million, compared to a net loss of $408 million on a pro forma basis in 2009. The main factors that affect Skype?s net loss are interest expense burden due to eBay?s acquisition and $344 million charge incurred by them in connection with the settlement in the Joltid Transaction).
Skype has launched several important commercial strategic relationships, including relationships in the mobile market with Verizon Wireless in the United States and KDDI in Japan and others in the consumer electronics market, such as arrangements with LG, Panasonic, Samsung, Sony and Vizio to embed Skype in certain HD televisions and Blu-ray players. In addition, in October 2010, Skype partnered with Facebook to integrate the Facebook channel, including Facebook news feed and Facebook phonebook, into Skype?s software client for Windows.
I believe that Skype?s net loss is just temporary and Skype will have a Pre-tax Operating Margin gradually reaching the average industry rate because most expenses come from eBay?s acquisition in 2005.
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Appendix 2: The Average Industry Number Average of Beta Firms 28 1.79 63 1.15 40 1.21 48 1.35 47 1.78 19 418 7 40 34 120 47 24 10 17 31 83 25 247 101 111 301 52 37 23 25 14 79 158 17 1.50 0.75 0.86 0.96 0.92 1.13 1.33 1.43 1.14 1.28 1.51 1.37 1.59 1.06 1.27 1.22 1.11 1.14 0.79 0.78 0.73 0.75 1.32 1.13 1.65 Unlevered Beta corrected for cash 1.55 1.07 0.95 1.32 1.58 0.93 0.47 0.84 0.68 0.86 1.20 0.88 0.97 0.94 1.19 1.39 1.20 1.45 1.12 1.31 0.76 1.08 1.19 0.84 0.46 0.49 0.49 1.29 1.13 1.85 Market D/E Ratio 36.55% 23.64% 52.64% 15.80% 24.67% 108.58% 85.86% 13.77% 69.03% 13.09% 13.24% 71.38% 68.40% 28.44% 18.75% 21.07% 23.06% 16.16% 4.68% 9.13% 99.77% 14.10% 4.58% 8.89% 96.84% 74.73% 83.18% 10.91% 18.40% 7.93% Cost Cost of of Equity Debt 11.80% 8.74% 9.01% 9.70% 11.71% 10.40% 6.82% 7.39% 7.84% 7.63% 8.66% 9.60% 10.07% 8.69% 9.38% 10.46% 9.78% 10.82% 8.31% 9.33% 9.07% 8.55% 8.68% 7.05% 6.99% 6.74% 6.83% 9.54% 8.63% 11.12% 6.29% 4.79% 5.29% 5.29% 5.79% 4.79% 4.79% 4.29% 4.29% 5.29% 6.29% 5.79% 4.79% 4.29% 4.79% 5.29% 5.29% 5.29% 5.79% After-tax Operating Margin 7.70% 8.02% 5.83% 8.70% 5.79% 6.66% NA NA NA 16.12% 15.10% 13.86% 21.19% 33.51% 14.35% 13.12% 10.52% 18.89% 19.61% 10.57% 17.08% 23.85% 8.15% 11.77% 18.55% 18.99% 19.23% 12.66% 5.62% 4.58% Pre-tax Operating Margin 13.75% 11.46% 10.17% 13.15% 8.23% 8.33% NA NA NA 21.54% 27.94% 14.55% 34.01% 37.52% 17.14% 19.29% 14.36% 23.53% 27.49% 13.89% 21.19% 32.12% 12.02% 18.55% 26.80% 28.32% 28.36% 17.55% 7.97% 6.69% Industry Name Advertising Aerospace/Defense Air Transport Apparel Auto Parts Automotive Bank Bank (Canadian) Bank (Midwest) Beverage Biotechnology Building Materials Cable TV Canadian Energy Chemical (Basic) Chemical (Diversified) Chemical (Specialty) Coal Computer Software/Services Computers/Peripheral Diversified Co. Drug E-Commerce Educational Services Electric Util. (Central) Electric Utility (East) Electric Utility (West) Electrical Equipment Electronics Engineering & Const Cost of D/(D+E) ROC Capital 26.77% 19.12% 34.49% 13.64% 19.79% 52.06% 46.20% 12.10% 40.84% 11.57% 11.69% 41.65% 40.62% 22.14% 15.79% 17.40% 18.74% 13.91% 4.47% 10.11% 7.79% 7.32% 8.95% 10.38% 6.97% 5.58% 6.91% 6.07% 7.24% 8.34% 7.73% 7.48% 7.62% 8.48% 9.34% 8.79% 9.96% 8.16% 9.10% 6.73% 8.34% 8.49% 6.79% 5.13% 5.13% 5.06% 9.04% 8.07% 10.58% ROE Net Margin 1.15% 2.77% 1.86% 6.49% 2.18% -0.83% NA NA NA 7.46% 6.97% -0.57% 4.08% 10.01% 4.67% 3.46% 3.11% 10.06% 9.67% 4.94% 3.70% 8.32% 3.32% 7.06% 8.55% 4.88% 8.48% 5.78% 2.25% 3.17% Sales/ Capital 1.27 2.94 2.22 1.97 2.47 1.82 NA NA NA 1.44 0.91 0.81 0.67 0.54 1.51 1.45 1.67 1.28 2.14 3.89 0.64 0.92 1.97 2.85 0.55 0.59 0.56 1.46 2.83 4.38 9.79% 0.46% 23.55% 23.91% 12.96% 0.11% 17.16% 11.79% 14.31% 4.15% -12.11% 24.81% NA 2.54% NA 11.01% NA 0.46% 23.26% 28.15% 13.79% 6.60% 11.22% 1.99% 14.10% 11.20% 18.03% 7.02% 21.71% 19.70% 18.99% 12.40% 17.58% 13.65% 24.20% 17.18% 41.96% 24.38% 41.12% 10.98% 22.06% 16.02% 33.53% 10.21% 11.25% 10.78% 18.44% 15.92% 20.10% 26.57% 13.13% 17.21% 6.76% 22.74% 9.70% 11.82% 9.75% 16.59% 9.03% 12.36% 7.29% 8.37% 5.29% 49.94% 7.29% 12.36% 5.29% 4.38% 5.29% 8.16% 4.29% 49.20% 4.29% 42.77% 4.29% 45.41% 5.29% 9.83% 5.79% 15.54% 50 / 66 5.29% 7.35%
