Could Skype kill Facebook's lofty valuation?

If Facebook fails to score a cool half-billion dollar investment from Microsoft, as the pundits in Silicon Valley are betting, it can blame Skype. Skype has revolutionised the phone industry by making calls cheaper. It looks likely to score a second, even greater trick: killing the valuation of over-hyped dot-coms like Facebook.

On Monday, Skype's owner, eBay, made an embarrassing admission. In shelling out $2.6 billion (£1.27 billion) two years ago for Skype, it paid way too much for the VOIP favourite, and it is now taking a $1.4 billion charge on its books to cover the over-payment. Over-spending by nearly £700 million for an unprofitable dot-com is still tame by dot-com bubble standards of the late 1990s. (Remember Yahoo! shelling out billions for Broadcast.com and Geocities in 1999?)

And, Skype is profitable, with a user base of 220 million. It's just not worth $2.6 billion. It wasn't then. It's not now. As Henry Blodget, an eBay shareholder and a man who knows well over-priced dot-coms, says on Alley Insider: Skype just didn't make strategic sense for eBay.

So, as any canny investor must be thinking, could Facebook, a site with an equally dubious path to profitability, really be worth $10 billion? Should Microsoft really consider investing $500 million into the social network site? Or, is it time investors started to honestly evaluate these high-flying services by a metric other than tens of millions of users? Of course. Will dot-com investors ever learn? Don't be on it.

Comments

[Davide]

It really is about time for a lot of these over hyped behemoths to show us their real cards. While I can understand the potential value of assets such as Skype, Facebook & MySpace I think that it’s really time to get realistic about how much these assets are really worth. Advertising is always a good cover to hide behind, but it is important to remember that the “advertising value” is really underpinned by Google Ad Words. To me that’s still the biggest card to be shown. While you can’t dispute that Ad Words is making Google money there are plenty of questions around Ad Words effectiveness for advertisers.

Call me old fashioned, but what happened to the days where businesses were valued on their bottom line? I have seen plenty of smaller companies that make profits of around $2 - $5 million a year struggling to sell their assets; while eBay pays billions to buys a company that (at the time) loses around twice that much a year? It doesn’t take a genius to see that something is up.

Yahoo and MSN are catching up to Google, Skype is a lot like JaJah (which by the way is another one to seriously reconsider in light of the Skype news) and Facebook is a lot like MySpace, Bebo and countless other social applications.

All this being said, I think that we as a society need hype to keep people innovating and growing. Hype draws together the best minds to collaborate for the greater good. Stories like the MySpace sale and the Facebook valuation give people hope and lets them dedicate their time and energy to projects that would otherwise never be attempted.