Tuesday was a major day for Microsoft Corp. (NASDAQ: MSFT) after the company announced its decisions to purchase Internet phone and chat outfit, Skype Technologies SA for a cash sum of $8.5 billion. The purchase of Skype appears to be the next step in Microsoft’s attempt to take a more active role in the communication side of technology. The deal will allow Microsoft to widen its scope and separate itself from its public identity as a company that may already be past its best days. Many investors, taking note of positive Microsoft earnings don’t see Microsoft that way, but the Skype purchase may help ease their worries regarding the weakened sales of their Window’s operating system.
Analysts had feared that Microsoft had been delegating too much attention toward the development and promotion of its newest tablet, which wouldn’t start generating profits until later quarters, This Skype deal may put those fears to rest as the company introduced a new way to produce capital. The popularity of Skype is widespread and use of the service may continue to grow alongside the popularity of video and chatting capabilities on smartphones and tablets.
According to a phone interview with Skype Chief Executive covered in the Wall Street Journal, it was explained that Microsoft views the Skype purchase as an opportunity to widen Skype's reach by combining it with the range of technologies Microsoft has to offer, including its new tablet, phone and the popular Xbox videogame console. Microsoft expects the steep price of the acquisition will be canceled by profit increased by next year.
Skype boasts Ebita over $250 million annually and Microsoft intends to build on that number. Skype will essentially take the role of the business division within Microsoft with the current Skype president at its leader.
The Skype deal marks the largest acquisition in Microsoft’s nearly 40 year history. The company is not traditionally known for big deals of this nature but their desire to widen their presence in the tech market and compete with the growing popularity of Apple’s chat program facetime may have been enough to prompt a riskier purchase.
There remains some argument over whether the deal was too big, or rather that Microsoft paid too much for the company. E-bay purchased Skype, which at the time was more popular in the tech community in 2005. Now, having infiltrated the mainstream its value has gone up. Still, its value did not accelerate at a pace attractive for Ebay, who then sold a 70 percent stake of the company across several venture capital firms and technology investors.
Shares of Microsoft were down 0.62 percent today indicating some investors are interpreting the acquisition as a risk rather than a potential boon.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer