There are indications that Skype could be prevented from doing business in China.  There are rumors that all VoIP systems originating outside the People’s Republic could be blocked. Some analysts see it as a form of censorship. A more cynical view is that China wants to protect the franchises of its state-owned telecom companies including China Telecom, China Mobile (NYSE: CHL), and China Unicom (NYSE: CHU).

The growth of Facebook and Twitter has been mostly in Western nations. Skype probably has a wider geographic customers base, but says that only 6% of its subscribers are in China. Facebook plans to boost marketing in Russia.  Whether it will meet with any resistance from the government there remains to be seen. Facebook’s new $50 billion valuation is almost certainly linked to its expansion potential outside its home market.

Censorship and the control of voice and personal communications has been less significant in countries other than China. Western companies such Research In Motion (NASDAQ: RIMM) have found that some nations with limited free speech rights will only tolerate Western communications technology so far. India has threatened to shut down the BlackBerry network in its country, claiming that “security concerns” are the reason for this decision.  India does not want encrypted data to move freely among its residents.

On the surface, the battle between China and Google (NASDAQ: GOOG) over censored search results and the break in to Google’s e-mail service in the People’s Republic appears to have little relationship with the India BlackBerry censorship issue.  There is much to suggest that the issues of communications control are more similar in these two countries. Local governments are threatened by the free flow of information, so they attack it at its source. The trouble between Google and China did not affect Google’s stock price more because the US-based search company gets so little revenue from China. Baidu (NASDAQ: BIDU), the local search engine company, has by far the largest market share in China. Certainly, China’s move to shut down the Google operation there was a great help to Baidu.

Skype, Facebook, and Twitter clearly understand the value of China’s 450 million internet users.  At this point, fewer than one in three people in the People’s Republic are online. The numbers are more staggering in India. Only 7% of India’s nearly 1.2 billion people use the internet. In Russia, 43% of the 139 million people are online. The Russian percentage is still low compared with most developed nations in which the number of people online is greater than 80% of the population.

Facebook’s penetration of the US social media market has not peaked, but it is close. One hundred and fifty million people visited Facebook in America during November. Facebook is the most searched term on Google in the US. Facebook’s new growth in its subscriber base will have to come from overseas. Facebook would probably be very popular in China. The Chinese government has currently banned it.

It will not matter ultimately why China battles Skype, Google, or Facebook. Government interests or the interests of local companies produce the same effect on the three firms. China may be the largest single block today to the rapid growth of microblogging, VoIP, and social networks  in the world. India may decide to follow China’s example. It is too early to know what Russia will do. It does have a local search engine, Yandex. Russians use several large social network sites. There is no information yet about whether the central government prefers them over Facebook, or whether any of these sites are monitored.

The valuations of Facebook, Twitter, and Skype still depend more on growth rates than revenue or profitability. The places they need to grow to continue their expansion may not be available to them

Douglas A. McIntyre

Foreign commercial real estate investors ranked the US as the No.1 location to buy properties. (Reuters)

Oil is unlikely to surge quickly above $100.  (Reuters)

House Republicans will try to repeal the health care law. (Reuters)

Apple (NASDAQ: AAPL) has problems with the accuracy of alarm on the iPhone 4. (Reuters)

Google Inc (NASDAQ: GOOG) will create a digital newsstand for newspapers and magazines. (WSJ)

Intel (NASDAQ: INTC) will use a new chip to attract paid entertainment companies. (Reuters)

Skype could become illegal in China. (Reuters)

Oil companies are still waiting for the first approval of new wells in the Gulf of Mexico. (WSJ)

A book distributor will stop shipping books to cash poor Borders Group. (NYSE: BGP) (WSJ)

Large companies seem ready to use the huge amounts of cash on their balance sheets for expansion. (WSJ)

China will allow companies to keep foreign currency profits instead of giving them to the government. The move could undercut inflation and slow the growth of the nation’s reserves. (WSJ)

Bank stocks face difficulties that may keep them from advancing. (WSJ)

The UAW will target foreign car plants to add to its power over manufacturers. (WSJ)

Verizon Wireless will release Google Android-powered phones. (WSJ)

Cooper prices hit a high and are likely to rise. (WSJ)

Bank of America (NYSE: BAC) has worked to protect itself from major disclosures by WikiLeaks. (NYT)

Nintendo means to take back the portable game market with 3D. (NYT)

Rivals to the Apple (NASDAQ: AAPL) iPad are expected to release a huge number of tablet PCs. (NYT)

Expedia (NASDAQ: EXPE) stopped sales of American Airlines (NYSE: AMR) tickets. (FT)

Output growth in China and India has slowed but increased in South Korea and Taiwan. (FT)

VW’s CEO got a contract extension as the German car company tries to top Toyota Motor (NYSE: TM) in global sales. (Bloomberg)

Vizio will try to attack Apple with low priced phones and tablets (Bloomberg)

US car sales probably rose in December. (Bloomberg)

Douglas A. McIntyre

Apple (NASDAQ: AAPL) plans to sell 21 million iPhones in the first quarter of next year (various)

Skype may offer video chat on several smartphones (various)

Obama will announce the new head of the National Economic Council by mid-January. (CNBC)

Douglas A. McIntyre

Skype went down for the better part of day earlier this week. Twitter is famous for its “fail whale” service problems. Facebook has the most stable platform to accommodate its subscribers 24×7, but the challenges of maintaining thousands, if not tens of thousand of servers is incredibly complex, and there are weaknesses in the world wide web itself.

There is a vocal minority of scientists who believe the Internet will become so overloaded with traffic that it will have large outages, or may even collapse in some parts of the world. This analysis is fueled by the fact that there are not only more people on the Internet each year. Video sites like YouTube and data sharing services which work on the “cloud” have begun to put an unsustainable amount of stress on the global Internet infrastructure. The creation of more “backbone” by telecom, cable, and governments has been too slow to allow the world wide web to operate seamlessly. Private sector online carriers may not be willing to invest in “pipe” as quickly as they have before. Expansion had become expensive, often ranging into the billions of dollars.

Facebook has come to dominate its market so thoroughly that is has no competition. Its user base is nearly 600 million. Its valuation is as high as $20 billion. Twitter also has no real rival. It has nearly 200 million users. Skype has some VoIP completion, but none have the global infrastructure and large number of customers to really challenge the Internet telephone company.

If Skype can essentially collapse for a day or more, then there is a chance that any of the largest Web 2.0 giants may face upcoming overload problems. Their primacy intact, each of the companies has as its only rival as the reliability of its own technology and the fragility of the Internet.

Douglas A. McIntyre

SpendingPulse reports online retail sales are up 15.4% (Reuters)

Global stocks had their best December performance in a decade. (Reuters)

Skype is still not working for 20% of its customers. (Reuters)

Samsung will make system chips for Toshiba. (Reuters)

Wal-Mart Stores (NYSE: WMT) has made a large investment in the largest online seller of electronics and communication equipment in China–360buy. (Reuters)

Bentana Gold rejected a buyout offer from Batista. (Reuters)

Municipalities have started to raise property taxes to cover the retirement costs of their employees. (WSJ)

Some large US companies have begun to hire again. (WSJ)

Apollo Management will buy $2.8 billion in distressed commercial real estate loans from Credit Suisse for $1.2 billion. (WSJ)

Online specialty stores are leading e-commerce sales higher. (WSJ)

Boeing (NYSE: BA) begun new test flights of its 787 Dreamliner. (WSJ)

Ireland will nationalize Allied Irish Banks. (WSJ)

Administration officials cannot agree on the futures of Fannie Mae and Freddie Mac and how they might play a larger role in the economic recovery (WSJ)

GE will take a Q4 charge to finish its cleanup of the Hudson River. (WSJ)

Exxon Mobil (NYSE: XOM) has added to its natural gas holdings (WSJ)

Google (NASDAQ: GOOG) has moved aggressively into local advertising. (WSJ)

Sales of Blu-ray products have helped overall DVD sales. (WSJ)

Leonard Green will take Jo-Ann Stores private. (WSJ)

Leslie Seidman was made head of the FASB. (WSJ)

The activation of e-readers may help increase holiday online sales. (NYT)

Sales of jewelry have aided the recovery of retail sales. (NYT)

The value of Facebook and Twitter have soared based on the market which trades small investments in the companies. (FT)

Goldman Sachs Group (NYSE: GS) has tied more of its compensation to long-term goals. (FT)

France’s AAA rating was confirmed by S&P. (Bloomberg)

Douglas A. McIntyre

Skype means to leverage its new universe of 3G users by  charging them to make calls over the AT&T (NYSE: T) network beginning later this year. That may result in Skype quickly losing its charm with users.

Skype said that calls made using WiFi will still be free. But, the charges will apparently apply to Skype-to-Skype customers,  a service that was free until now.

Skype has  improved its service since it started in 2003. The firm has added video calls. Skype used to only work on PCs. Now it works on portable devices. Skype’s popularity can hardly be questioned. The company claims it was responsible for 12% of global international calling minutes, with its users making 3.1 billion minutes of calls to landlines and mobiles in the third quarter of 2009. As many as 23 million users are logged on its service at any one time.

Skype has already begun to charge for some types of calls including those made from Skype subscribers to people who are not a member of its network. But, offering a service that the public believes is free at a cost carries great risks.

EBay (NASDAQ: EBAY), Skype’s owner for several years, sold a two-thirds interest in the company last year for $1.9 billion and a $125 million note. The investors in the deal expect to get their money back, and almost certainly a healthy return.

Skype has largely been a free service since it founding because it was an alternative to paid phone services. Charging customers for 3G calls be its undoing

Douglas A. McIntyre

• Its most recent social networking launch was panned by many;
• it recently acquired ViA-Online in Germany;
• a key patent fight was ongoing;
• At one point, Jim Cramer was hoping for a major merger here.

Analysts have an average price target of $40 to $41, so if the news is good there will likely either be "valuation" comments or raised targets.  Shares are up over 20% from the recent lows, and have been stuck in a $38 to $40 range for most of the last five weeks.  If you use this months options that expire Friday, it appears that options traders are braced for a move of up to 3.5% to 4% in either direction.

This is only one of several recent calls, but Cantor Fitzgerald just maintained its SELL rating with a $30 target yesterday.  A counter-call to that was American Technology Research, which reiterated a Buy rating and raised the target from $43 to $45 in its note.

eBay’s SKYPE signed an internet voice pact with MySpace just yesterday, and this has also contributed to some optimism.  Skype needs all the hype it can get because the founders already hinted that they thought eBay overpaid when it acquired Skype.

One of the big underlying things to watch here is the fear of mergers.  Many have feared that eBay will again make more mergers.  We’ll be watching this one closely along with its other metrics.

Jon C. Ogg
October 17, 2007

eBay also announced that it has paid approximately $530 million (in Europe) to settle all of its future obligations under the earn-out agreement signed with certain Skype shareholders when eBay acquired Skype in 2005.  eBay expects that the approximately $530 million payment, together with an additional amount of approximately $900 million, will be taken as an impairment charge to be recorded as part of its Q3 financial results.

This likely won’t impact non-GAAP earnings per share by anything drastic but will create a change to analysts’ cash flow expectations and to GAAP net income expectations for the quarter.  Interestingly enough, eBay lists over $6.9 Billion in Goodwill of its entire $14.36 Billion assets.  The good news is that it only listed $2.8 Billion in total liabilities at the end of last quarter (before these charges of course), so the online auction king can quite easily ride this one out.

• We have covered its "BUY IT NOW" patent fight;
• We noted the Cramer call for it to merge with Yahoo!;
• and even noted its Skype selling at Wal-Mart.

Jon C. Ogg
October 1, 2007

The Skype site has a three month average ranking as being the 346th most visited site on the internet, using Alexa number. For the week that number jumped to 188 and yesterday rose to 96. It is a good indication of how many users were anxious to find out when the service would be back up.

Douglas A McIntyre

EBAY chief financial officer Bob Swan put a point on it: “Activation levels are not where we want them to be.”

Well, making up for lost ground is hard to do when the Skype service is not even working.

It is down now, for a second day in a row.

Douglas A. McIntyre