Skyped-Out For Telcos
Skype (www.skype.com) is a service that allows users to do voice call over the internet. The service is fairly simple to use. Just download the application from their website, invite your friends to your call list and viola – u can now talk seamless – and free online! What is amazing is that Skype allows you to call any number worldwide – be it landline or mobile. They call this service Skype-Out. Currently, you can use Skype-Out to call any US or Canada number for free.
Skype was bought by eBay in 2005 for US$2.5bn. Currently, the company generates close to US$100.0m in revenues per year. It has 100m users to date. The company expects to hit US$500.0m in revenues by 2007. For a company that started in 2003, this is another “Google-like” phenomenon in the making.
Skype symbolizes the new era in voice communication. This is similar to the launch of Netscape browser in 1995 that heralded the internet era. We have been talking about voice over internet protocols (VOIP) and I guess the era has arrived. This is bad news for the telcos as users will switch to VOIP service. Note that telcos generate close to 1/3 of its revenue from inbound call traffic.
The worst dilemma for telcos is that they have to grow their internet business but at the same time, they have to cede the high value business to the likes of Skype, Yahoo!, Google etc.
I am "long-term" bearish on telco stocks. They are entering a very difficult operating environment. Here are my arguments:
1.) Telcos are no different from utility companies. Its growth model is scalable only to a certain extent. I guess at 45% mobile phone penetration in the country, it will be very difficult for telcos to grow the market.
2.) There is a finite demand for phone calls. You can only consume as much phone calls no matter how much the price drops. This is no different from water and electricity consumption.
3.) Revenue environment is becoming more competitive. Recently, Globe and Smart announced series of price cuts. This means that revenue per unit will continue to drop.
So I guess we have seen the high of telco stocks. At most PLDT and Globe will only trade within the 8x-11x PER range unless there is an overall PER expansion for the market. I hate to see analysts say that PLDT/Globe is cheap at single digit PERs. I guess, these stocks ought to trade at those levels since their growth era is gone. PLDT rose from P250 to P2,300 on the back of de-leveraging and earnings growth story. With these elements gone, it will be hard sell for the telco stocks.
Skype was bought by eBay in 2005 for US$2.5bn. Currently, the company generates close to US$100.0m in revenues per year. It has 100m users to date. The company expects to hit US$500.0m in revenues by 2007. For a company that started in 2003, this is another “Google-like” phenomenon in the making.
Skype symbolizes the new era in voice communication. This is similar to the launch of Netscape browser in 1995 that heralded the internet era. We have been talking about voice over internet protocols (VOIP) and I guess the era has arrived. This is bad news for the telcos as users will switch to VOIP service. Note that telcos generate close to 1/3 of its revenue from inbound call traffic.
The worst dilemma for telcos is that they have to grow their internet business but at the same time, they have to cede the high value business to the likes of Skype, Yahoo!, Google etc.
I am "long-term" bearish on telco stocks. They are entering a very difficult operating environment. Here are my arguments:
1.) Telcos are no different from utility companies. Its growth model is scalable only to a certain extent. I guess at 45% mobile phone penetration in the country, it will be very difficult for telcos to grow the market.
2.) There is a finite demand for phone calls. You can only consume as much phone calls no matter how much the price drops. This is no different from water and electricity consumption.
3.) Revenue environment is becoming more competitive. Recently, Globe and Smart announced series of price cuts. This means that revenue per unit will continue to drop.
So I guess we have seen the high of telco stocks. At most PLDT and Globe will only trade within the 8x-11x PER range unless there is an overall PER expansion for the market. I hate to see analysts say that PLDT/Globe is cheap at single digit PERs. I guess, these stocks ought to trade at those levels since their growth era is gone. PLDT rose from P250 to P2,300 on the back of de-leveraging and earnings growth story. With these elements gone, it will be hard sell for the telco stocks.
posted by jack galt at
5:06 PM
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