) announced plans to buy Skype for around $8.5 billion. In a
conference call this morning, Skype and Microsoft laid out their
visions of the union including Steve Ballmer's take on how well
Skype could integrate with Outlook, Xbox and Windows mobile OS.
Ballmer likes that "Skyping" is synonymous with Internet calling,
and with Skype, Microsoft can make enterprise products more
collaborative as well as support its gaming and mobile initiatives
to better compete with its peers like Cisco (
), Google (
), Apple (
) and others.
Skype could be good fit for Microsoft
We believe Microsoft could integrate Skype's voice, video and
sharing technology with some Microsoft Office as a way for
businesses to better collaborate and use Microsoft products via the
Internet. Office is an important business for Microsoft and
accounts for around 35% of our estimate for Microsoft stock. These
features could give Microsoft better pricing power in selling its
licenses to enterprises.
Skype has about 663 million registered users, and Microsoft
could leverage such a large user base to promote its search
advertising business through Bing. Although Bing's market share is
still small compared to Google's, the large Skype's user
base could help Bing gain market share at a rapid pace.
Finally, Microsoft could integrate the Skype calling service
into its own operating system Windows Phone 7. Although Skype is
already integrated with iPhone and Android OS, Microsoft could look
to incorporate Skype into its mobile offering. Microsoft is
desperately looking to increase its presence in the smartphone OS
market, in which it continues to lose market share. According to a
recent Comscore report, Microsoft's U.S. smartphone subscriber
market share declined from 8.4% in December 2010 to 7.5% in March
Our price estimate for Microsoft stands at
, which is a premium of roughly 25% to the market price.
See our complete analysis for Microsoft