Redo - eBay sells Skype

Summary

This article was about eBay, an online auction site selling 65% of its internet telephone service, Skype. Skype was not purchased by the founders of this site who left eBay, as some would expect, but by another group of investors. $2 billion cash was paid even though eBay claimed it was worth $2.8 billion in total. Skype was bought four years ago by eBay for $3 billion in order to let the users of eBay communicate better. Many online shoppers eventually stopped using the time consuming eBay and instead bought things at the set price, causing the company’s revenue to drop and leading to the selling of this “bad investment”.

Connections

I found many connections to Chapter 3 which is about changes financial position and transactions. The selling of Skype would result in a decrease in eBay’s assets. Also, either eBay’s bank account or accounts receivable account would be increased by 2 billion dollars as a result of selling Skype. For the purchasers of Skype, their bank account would decrease by $2 billion and they would gain an asset worth $2 billion. Skype was claimed by eBay to be worth $2.8 billion dollars but was sold instead for a lower price of $2 billion. As a result, eBay would record this as a loss on sale of an asset and suffer a loss of $0.8 billion. On the income statement for eBay, the net income would decrease by $0.8 billion as a result of this expense.

Reflection

I think the selling of Skype was a smart move by eBay. The former boss of eBay, Meg Whitman, said that the duo of the two services would allow better communication between the users of the site. I think this isn’t true because the users could simply just use the site itself to communicate instead of using Skype. This was a pretty good investment for eBay however because of how surprisingly successful Skype was, having a total of 480 million users and bringing in an additional 170 million users later on. The selling of Skype brings in some quick cash to help make up for their decline in revenue. I think that the revenue will continue to decline as a result of the recession, so selling Skype will help make up for the lower income.

http://www.economist.com/businessfinance/displayStory.cfm?story_id=14376414

Intel profit, sales fall 8%

http://www.theglobeandmail.com/globe-investor/intel-profit-sales-fall-8-per-cent/article1322148/

Summary

Intel, a major technology company, suffered an 8% decline in profit during the third quarter between July and September due to demands for lower prices for their computer chips. What is unclear is whether the PC companies are buying chips because they are running low on inventory, or they predict that there will be many sales of PCs as the holiday season draws near. Intel managed to produce a net income of $1.9 billion. Sales amounted to $9.4 billion, a little more than the predicted $9 billion. This decline in sales shows that the recession “continues to take a toll” even though Intel managed to get more out of its business. The company is expected to make $9.5 billion in the final quarter.

Connections

There are a few connections between this article and chapter eleven. Intel is a manufacturer, which sells its products to wholesalers or retailers in the merchandising business. The PC companies, or the retailers, as part of the inventory cycle, purchases products from Intel to replenish their inventories. Unlike the other businesses we have studied so far which perform services, Intel sells to consumers and therefore sports a sales account in place of a revenue account. Intel had sales of $9.4 billion and a net income of $1.9 billion.

Reflection

The effects of the recession really show in Intel’s 8% decline in sales. I think that rather than just simply restocking their inventory, that PC makers are expecting more sales for the holidays, demanding lower chip prices. This is one of the many times that Intel managed to perform better than expected, with higher sales than predicted even during the recession. Intel is very good at “doing more with less” and getting the most out of the business as shown in their sales of $9.4 billion and profit of $1.9 billion. It is still obvious that the company is affected by the recession.

ACC 12 - eBay sells Skype

http://www.economist.com/businessfinance/displayStory.cfm?story_id=14376414

Summary
This article was about eBay, an online auction site selling 65% of its internet telephone service, Skype. Skype was not purchased by the founders of this site who left eBay, as some would expect, but by another group of investors. $2 billion cash was paid even though eBay claimed it was worth $2.8 billion in total. Skype was bought four years ago by eBay for $3 billion in order to let the users of eBay communicate better. Many online shoppers eventually stopped using the time consuming eBay and instead bought things at the set price, causing the company’s revenue to drop and leading to the selling of this “bad investment”.

Connections
Skype was sold because of eBay suffering a decline in revenue for the first year in a while. There was some confusion with the cost price of this asset because it was bought for only 2 million while eBay claimed it was worth more. This could be because only 65% of the telephone service was being sold. This article also has a connection to the principle of conservatism because of eBay having to estimate the price of 65% of Skype while making sure it was fair.

Reflection
EBay only sold Skype because of the decline in revenue caused by less people using the site to auction things. The drop in revenue could have been because of the recent economic crisis or that people are too lazy to bid and buy the things at the set price. Either way, I think eBay should have waited longer to see if the revenue increases instead of being so quick to make their decision based on the results of just one year. Keeping this telephone service means that it would be easier for users of the site to communicate and therefore will attract more people. Even more users of the site could be lost because of the selling of Skype.