Finanace

Initial Public Offerings

An IPO for Skype?

Skype is software that enables the world’s conversations. Millions of individuals and businesses use Skype to make free video and voice calls, send instant messages and share files with other users. People everywhere use Skype to make low-costs calls to land lines and mobiles. On April 14, 2009 eBay announced its plan to separate Skype from the company, beginning with an initial public offering (IPO). Due to Skype’s limited synergies with eBay and PayPal, operating it as a stand-alone publicly traded company is the believed to be the best path for maximizing its potential. Skype has accelerating global user growth, strong fundamentals and diversified revenue streams (Marks, 2009). In order to determine the best IPO choice for Skype, one must know and understand the difference between a traditional IPO and an auction-based IPO. Companies conduct IPOs of stock to raise capital for operations and growth. Auction-based IPOs are becoming as alternative to the traditional IPO. Auction-based IPOs offer several advantages to both the companies and the individual investors, but also carry some risks. Skype is competitively positioned in a large market and therefore will be best executed with an auction based IPO as Morningstar and Google.

In a traditional IPO, a company hires an investment bank to underwrite the IPO. The company and the investment bank research the likely market value of the company. Bas3ed on the research and the amount of capital the company wants to raise in the IPO, the company and the invest bank determine how many shares will be offered, as well as the price per share of the offering. This price is usually discounted from what the company and investment bank estimate the true market value will be.

After the number of shares and share price of the IPO are determined, the company and the investment bank conduct a road show, in which the present the offering to large investors. These...