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
