Skype's SEC filing reveals huge revenue swings

Skype has trouble accurately counting users, calls made

In order to sell public stock, Skype has filed a form with the U.S. Securities and Exchange Committee that forces the company to reveal information it would otherwise keep secret as a private company. For instance, Skype revealed that it worries about whether the iPhone and other Apple products will undermine its VoIP services (see related story, Skype worries about iPhone, attracting business customers).

Here are some other highlights gleaned from the Skype IPO filing:

* Rollercoaster financials: 2007 net loss of $1.4 billion; 2008 net income of $41.6 million; 2009 net loss of $386.8 million; 2010 through June 30, net income of $13.1 million

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In order to sell public stock, Skype has filed a form with the U.S. Securities and Exchange Committee that forces the company to reveal information it would otherwise keep secret as a private company. For instance, Skype revealed that it worries about whether the iPhone and other Apple products will undermine its VoIP services (see related story, Skype worries about iPhone, attracting business customers).

Here are some other highlights gleaned from the Skype IPO filing:

* Rollercoaster financials: 2007 net loss of $1.4 billion; 2008 net income of $41.6 million; 2009 net loss of $386.8 million; 2010 through June 30, net income of $13.1 million

* Huge court costs: The company spent $343.8 million in connection with settling a lawsuit by Joltid claiming that Skype and its then-owner eBay were using Joltid peer-to-peer technology without paying a license fee.

* Dependent on SkypeOut: The company relies on income from users who pay to place phone calls from Skype on their computers to traditional public phone networks via the SkypeOut service. For the six months ended June 30, 2010, 87% of net revenues were generated by SkypeOut.

* Trouble attracting corporate business: Skype for Business – enabling corporate IP PBXs to receive Skype calls – as a source of revenue: “currently limited.”

* Ad woes: The company hopes to make money by selling ads that appear on the Skype PC client, but acknowledges that trying to do so may drive customers away and hurt the Skype brand name.

* Iffy customer count: Skype’s count of its users is inflated because some users register more than once, some are automatically registered when they join other services such as MySpace. It also includes users suspected of using their accounts for fraudulent activity.

* Uncertain traffic: Because its technology is peer-to-peer, it is difficult to measure the number of calls users make or whether they use video.

* Seasonal use: Skype use drops in summer months but peaks during the holiday seasons like Christmas and Chinese New Year.

* Competitive concerns: Skype worries about: traditional telcos offering phone services for free or at significantly lower prices than Skype charges; ISPs blocking or restricting Skype traffic; competitors that offer e-mail; regulators in countries with state-owned telcos; legal challenges against the use of the Skype name and logos; being regulated by government telecommunications laws requiring 911, wiretap capabilities, QoS, directories, and limiting use of cryptography; penalties from countries where Skype is banned but people use it anyway.

* Growing headcount: The company employs 839 people, up from 640 in June 2010.

* Low taxes: Skype doesn’t collect or pay state or municipal taxes such as sales, excise, utility, or use taxes, fees or surcharges on sales to U.S. customers, but that could change.

* Limited track record: Whether to invest in Skype may be a crapshoot because common indicators may not be accurate. The filing says: “In view of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of future performance. Due to, among other things, our short operating history and the inherent difficulty in forecasting net revenues, it is also difficult to forecast expenses as a percentage of net revenues. Quarterly and annual expenses as a percentage of net revenues may be significantly different from historical or projected rates. In addition, our gross margin is difficult to predict due to changes in usage patterns, potential future sources of additional net revenues and future arrangements with third parties, which may include revenue sharing or other alternative pricing models.”