eBay&Skype: Fun with Numbers

eBay's acquisition of Skype, and particularly the price paid, was met with great skepticism -- at best -- from the pundits. But as eBay provides insights into the business impact of the deal a number of the "experts" may have a different perspective.

As reported at eBay's Analyst conference on Thursday, the addition of Skype has doubled the average selling price of presence-enabled listings. That, in turn, doubles eBay's revenue for those presence-enabled listings. As an aside, eBay's economic model is remarkably transparent and outlined in very publicly available detail and data. For a primer, see eBay's investor relations revenue model tutorial.

In 2005, eBay earned $3.49B in transactional revenue. Transactional revenue is the kind that doubles with the addition of presence. Transactional revenue is also growing 35% - 40% or so annually.

For arguments sake, let's apply those actual results from the China listings to all of eBay's transactional business. In China, 25% listings are currently presence-enabled and the Average Selling Price doubles. We'll assume for a moment that Skype is fully rolled out in 2007. Extrapolating the same transactional revenue growth from 2005 actual revenue derives the following:
- Guesstimated 2007 Transactional Revenue without Skype: $6.36B
- Transactional Revenue Lift by Presence-enabled listings: $1.59B!

That's for one year! And that does not include any revenue lift from the new "pay-per-lead" products that Meg Whitman previewed. Nor does it include any lift attributable to more advertising although it's entirely logical that as sellers recognize a doubling a sales they will, all else being equal, shift more of their advertising dollars to eBay. To make matters even more attractive, eBay's cost of net revenue was 17.9%. In other words, 80% of the incremental revenue is gross profit. Just to complete the math for those following along, about $1.27B of the presence-enabled lift is gross profit.

How's that for a different take on a $2.6B acquisition?