RPT-IPO VIEW-Skype may not light up IPO market — analysts

(Repeats IPO VIEW first released on Sept. 3)

* Google calling a threat to Skype IPO — analysts

* Skype’s profitability still a concern

By Liana B. Baker

NEW YORK, Sept 3 (BestGrowthStock) – Skype, the Internet calling
company, could have trouble getting top dollar in its initial
public offering thanks to Google Inc (Read more about Google Stock Analysis) (GOOG.O: ).

Skype is high profile and some capital markets experts had
hoped a successful offering would jump-start the IPO market for
technology companies. Companies such as Hulu and Yelp are seen
as potential IPO candidates when the market improves.

But hopes Skype would lead a wave of tech IPOs are fading
after Google announced a new feature on Aug. 25 allowing users
to make calls through their Gmail accounts, driving users to
dial a million calls in 24 hours.

With the added competition of Google, Josef Schuster,
founder of IPO research house IPOX, said he will probably lower
his bid for Skype shares for his Direxion Long/Short Global IPO
fund.

“Google is obviously going to cut into Skype’s main
business,” Schuster said.

Google is the biggest threat to Skype’s position as the
leader in Internet calling. While other companies have offered
similar services before, none has had a subscriber base like
Google’s and the convenience of being built into a browser such
as Gmail, says Stephan Beckert, a research analyst at
TeleGeography.

Even before Google’s announcement, some analysts were
concerned about Skype’s profitability. Only 8.1 million, or 6.5
percent of Skype’s 124 million average monthly users, were
paying customers in the second quarter of 2010, according to a
regulatory filing.

The company’s operations have not always been profitable,
although in the first six months of 2010, Skype posted net
income of $13.1 million.

“The firm still struggles to generate a strong enough
operating profit to reward investors for the risk of their
capital,” said Mike Gaiden, an analyst at Morningstar.

Gmail users can make free calls from their computers to
telephones in the United States and Canada until the end of the
year, while international calls start at 2 cents a minute.

Skype charges users to make calls from computer to phones,
starting at about 2 cents a minute to call in the United
States, then the rates vary from country to country. Calls
between computers and other devices using Skype are free.

Investors might also have been scared off by Vonage
Holdings Corp (VG.N: ), the last major Internet telephony company
to go public. The IPO in May 2006 was set at $17 per share, but
the shares plummeted soon after its debut. Vonage shares were
trading at $2.24 on Friday.

CLOSE WATCH ON SKYPE

Skype filed for a $100 million IPO on Aug. 9, but it is
likely the company will raise more. A group of investors bought
Skype from eBay Inc in November 2009 for $1.9 billion in cash
and a $125 million note.

How much the company will be worth in an IPO is hard to
say. IPOdesktop.com’s Francis Gaskins puts Skype’s valuation
between $2 billion and $2.5 billion, assuming it traded at
about 10 times the value of its earnings before interest,
taxes, depreciation and amortization, a measure of cash flow.

He said a consumer company with a less-well known brand
might trade at closer to 6 to 8 times EBITDA, but Gaskins
believes Skype may be able to get a premium valuation.

There are some market tail-winds that could help Skype.
Tech IPOs have outperformed their non-tech counterparts, rising
9.9 percent this year, compared with the overall IPO market’s
decline of 4.6 percent, according to Thomson Reuters data.

MakeMyTrip Ltd (MMYT.O: ), an Indian Internet travel agency
made a strong debut on the Nasdaq in August and its shares were
trading at $32.90 on Friday, more than double the offering
price.

But MakeMyTrip is fairly low profile, analysts said. For
big tech companies to consider coming to market, they will want
to see a big name do well.

“A success story with Skype will put the spotlight back on
the tech sector,” Gaskins said.

Many analysts are skeptical about whether Skype could get a
premium valuation, or set a tone positive enough for other
companies to want to go public.

“I don’t think Skype fits that bill in terms of a marquee
company that would set the IPO market alight,” Gaiden added.
(Reporting by Liana B. Baker; editing by Andre Grenon)

RPT-IPO VIEW-Skype may not light up IPO market — analysts