Cognitive Dissonance at Skype

Here’s what I don’t understand about eBay’s

Skype write-down; I’d seriously love it if someone can explain it to me.

As I understand it, eBay bought Skype for $2.6 billion upfront, with the sellers

potentially getting as much as $1.7 billion extra if the company performed well.

Today, eBay paid out $530 million of that $1.7 billion, and said that the payment

"is reasonable given the progress and anticipated rapid growth of Skype’s

active user base." From eBay’s point of view, then, Skpe is now worth at

least $530 million more than the $2.6 billion it paid.

But at the same time, eBay wrote off some $870 million of the goodwill

associated with the Skype purchase: in other words, eBay is saying that Skype

is worth $870 million less than the $2.6 billion it paid.

How can both these things be true at the same time? I suspect that the answer

has something to do with some crafty drafting on the part of Skype’s sellers

at the time that the company was acquired – or else eBay is essentially

coming out and saying that the model it used to value Skype was seriously flawed.

But there’s definitely a fair amount of cognitive dissonance here – much

more than there is in a silly market quirk like Citi’s share price going up

as its profits go down.

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