EBay Plans Spinoff of Skype Through IPO

EBay said on Tuesday it would spin off its Skype Web telephone services unit through an initial public offering, cheering investors who had prodded the online giant to unload the fast-growing, low-revenue business and return cash to shareholders.

Shares of eBay were up about 3 percent after hours.

The move by eBay—which has given up trying to integrate Skype into its main marketplaces business—could also seen as placing a 'for sale' sign on the unit to fetch offers from potential buyers.

San Jose-based eBay, which acquired Skype in 2005 for $2.6 billion, has signaled it would be ready to unload the division for the right price. Recent media reports said the business' co-founders were seeking to bid on the company, and shareholders have pushed for a sale or spin-off.

• Slideshow: The 12 Biggest Tech Blunders of the Last 25 Years

"We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential," eBay Chief Executive John Donahoe said in a statement, adding there were few synergies with the larger company.

But the outlook for an IPO is still unclear, said Commresearch analyst Gregory Lundberg.

"The very first thing that I have to say is market conditions currently would not support an IPO of Skype," Lundberg said. "2010 will be equally questionable unless the business completely changes course with the launch of the Blackberry and iPhone applications."

Paul Sakuma / AP The eBay headquarters in San Jose, Calif

But, he added: "Strategically, something else might happen altogether."

The announcement comes a year after Donahoe took the helm at eBay and said he would evaluate whether the telephone service was a good fit with the rest of eBay, which also includes Web payments service PayPal along with its core auctions business.

Many on Wall Street raised eyebrows when former eBay head Meg Whitman purchased Skype, skeptical of the high price tag and eBay's claims that its customer base of buyers and sellers would use Web phone calls and the company would benefit from a strong Web brand.

Last month at an analyst day, Donahoe said he would make the right decisions to maximize Skype's value.

Skype, which posted revenues of $551 million in 2008, allows international and local calls through the Web. Fellow Skype customers can call each other for free, a strategy that has helped to spread the service.

Copyright 2009 Reuters. Click for restrictions.