Microsoft, which has been trading around $25 since, oh, 1998 (I kid you not) is now buying Skype for $8.5 billion.
Am I the only one who thinks this "bolt-on acquisition" is unnecessary or at least extremely expensive, and that it highlights they don't really have an organic growth strategy?
Skype booked $860 million in revenues and had a LOSS of $7 million. I have heard valuations at roughly 8 to 9 times 2010 sales, or 32 times 2010 EBIDTA. Is that a little, or a lot? Sounds like a lot to me.
Of course, the bulls will argue that valuation is irrelevant (huh?). They say Skype has grown its user base by about 40 percent.
Most of all, they say Microsoft is sitting on a boatload of cash (true, something like $38 billion). They argue that the fact that Skype is based in Luxembourg makes the deal a positive from a tax standpoint (couldn't they just buy Luxembourg, one wag suggested?).
But couldn't they do anything else with the cash? Apparently, MSFT concluded there were no other attractive targets (so much for RIM ). Apparently, they think that neither buybacks nor (gads) increasing the $0.16 dividend don't add enough value.
I know, I know...663 million registered users is a lot of users...it is a "unique asset" (wasn't AOL? Sorry). Bulls argue that video calling is like email was 10 to 15 years ago. They throw around the usual buzzwords about 'synergy" with other products like SharePoint or Office 365. They will add it to their suite of products for PC. They will connect it to Xbox/Kinect. It will help them compete against Google Voice.
But for $8.5 billion? Have we heard this before? And can I ask how much confidence everyone has that MSFT will be able to execute such a complicated strategy?
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