Detailed Scenario Analysis of Microsoft's Acquisition of Skype

Ascendere Associates LLC
Stock Commentary: May 16, 2011

Valuing Microsoft Corp.'s Skype Acquisition
This past Tuesday May 10 Microsoft Corp. (MSFT) generated quite a bit of buzz with its announcement that it intends to
purchase Skype for $8.5b in cash. A transcript of the online conference discussing the deal is also available and The Wall
Street Journal posted a comprehensive write-up of the deal.
According to a prospectus dated April 13, 2011, Skype generated revenue of $860 million, company-adjusted EBITDA of
$264 million. By our estimates, recurring operating profit in 2010 was $41m and free cash flow was $157m. In 2005
eBay, Inc. (EBAY) purchased Skype for $2.6b and sold a 70% interest to various investors in 2009.
For our investment research clients we tend to focus on companies with solid operating momentum, defined by cash
flow growth and ROIC expansion. While Microsoft was making some progress with generating higher returns on capital
through its September 2010 quarter, that trend had since turned down. Adding $8.5b in intangibles to fixed assets with
presumably negative accompanying free cash flow is going will simply just reaffirm that new declining trend that was
already in place. As a result Microsoft stock will not be appearing on our buy lists any time soon.
Of course, Microsoft must know that a Skype acquisition negatively impacts ROIC in the short term, so this implies that
this acquisition is more of a long-term defensive play. There are a number of qualitative reasons why buying high-quality
video, voice and chat connectivity makes sense in a bid to stay relevant as software productivity applications and
Internet-driven social media are increasingly overlapping:
Product synergies that may help retain existing Microsoft customers and drive new product innovation.
Acquire a large installed base of customers that has taken nearly a decade to assemble.
Save time and effort in building out its own VoIP infrastructure.
Force competitors to waste time and money to build out their own VoIP solutions.
But how does the Skype acquisition figure within a financial valuation context based on long-term projected cash flow
scenarios? Based on our detailed analysis, we Microsoft's purchase of Skype was a reasonable move. We see little
downside impact to Microsoft as a result of this deal, and while it seems unlikely there is still a chance for considerable
for valuation upside. This report summarizes our valuation analysis.
J. Stephen Castellano
steve@ascenderellc.com
Page 1

www.ascenderellc.com
Scenario Analysis
In summary, our detailed analysis supports our initial view which we posted a few hours after the acquisition was
announced -- namely that this acquisition has no immediate impact on Microsoft's valuation. That is, the quantifiable
value we find from the weighted average of all possible scenarios is an incremental $379m, or $0.04/share to Microsoft.
In our opinion, our Base Case forecast scenario is the most reasonable so we have assigned this a 60% probability of
occurring. For the Good Case and Bad Case scenarios we assign a 15% probability and for the extreme Worst Case and
Best Case scenarios we assign 5% probabilities.
Why then did Microsoft go ahead with the deal?
Even though we think the impact of the acquisition is negligible, as time goes on Microsoft has a chance of realizing
about $15b in incremental value with little risk beyond the $8.5b cash it spent to acquire the company. In addition,
should MSFT fail to capitalize on its Skype acquisition, it seems likely it would be able to sell it to another investor
thereby mitigating its loss somewhat. The possibilities from the Skype acquisition, no matter how remote they seem at
the time, are much more attractive than spending the cash on a dividend payout or share repurchase.
Note that these forecasts, with their various growth rates, margins, discount rates and probabilities of project failure
completely embed the strategic value of Skype to Microsoft. That is, all qualitative valuation considerations (e.g., time
and cost for competitors like Google (GOOG) and Facebook to start their own app-based video and voice network) are
completely embedded in our analysis.
In the report that follows, we detail how we generated our base case, best case and worst case forecasts.
Microsoft Acquisition of Skype

Equity Value Scenario Analysis
($ millions)
Worst Case
Bad Case
Base Case
Good Case
Best Case
All Scenarios
Scenario
Probability
5%
15%
60%
15%
5%
100%
Skype
Standalone
Value
284
879
2,072 +
4,389
8,952
Benefit of
MSFT
Market
94
288
683 +
1,656
3,220
Benefit of
MSFT
Synergies
(558)
35
1,510 +
1,525
2,450
Source: Ascendere Associates estimates
Value of
Net Value
Benefit of
Skype
Skype
of Skype
MSFT
Division
Cash
Realized by
Capital
to MSFT
Cost
MSFT
345
165
(8,500)
(8,335)
1,708
2,910
(8,500)
(5,590)
3,243 =
7,507 +
(8,500) =
(993)
8,615
16,185
(8,500)
7,685
16,752
31,373
(8,500)
22,873
Net Value of Acquisition
445
MSFT shares outstanding
Page 2
Net Value
of Skype
Realized by
MSFT
(0.99)
(0.66)
(0.12)
0.91
2.71
$
0.05
8,432.8

Base Case
Skype Stand Alone
On a stand-alone basis, we estimate Skype sales growth at a 10.6% CAGR from $860m in 2010 to $2.5b in 2021. This
assumes that the number of average monthly paying subscribers grows by nearly 5 times from 8.8m in 2010 to 43.3m in
2021 while monthly average revenue per paying user (ARPU) declines from $8.08 in 2010 to $5.11 in 2021. Our
forecasts assume that the growth rate of paying users and their minutes of use increases from 120 minutes each month
to 148 minutes per month by 2021 while revenue per billing minute declines -7% year through 2021.
We think gross margins will eventually peak at 60% from 52% currently and that Operating Margins will peak in 2017
years at 34.2% and subsequently come under pressure and decline to 31.5% by 2021 as Sales & Marketing and Product
Development spending is upped to counter what is likely to be then an increasing amount of competitive pressure.
We have been generous with our Capital Spending and associated Depreciation assumptions, keeping them fixed as a
percentage of revenue throughout our forecasts at about 4.4% and 5.5%, respectively (excluding amortization of
acquired intangible assets). We feel we are being generous with assumed investments in infrastructure given the
telecom industry's ongoing history of announcing "unexpected" and "temporary" huge surges in capital spending
projects as players try to maintain and improve quality all the while keeping up with the latest technological
enhancements.
$2.78b Enterprise Value
Given all of these assumptions, we think free cash flow has a reasonable chance of steadily increasing each year and
reaching $713m by 2021. At this point, we assume that Skype can generate free cash flow grows perpetually at a 2.5%
annual rate generating a terminal value of $5.04b at a 17% discount rate. Discounting the forecast cash flows and
terminal value at this 17% discount rate provides us with a $2.77b present value of the unlevered firm. Taking into
account interest tax shields and the potential for possible default at what we assume is consistent with other B+ credit
ratings we arrive at an enterprise value of $2.69b. We use a 17% discount rate because that is what the company
assumed to estimate the fair value of its shares on page 130 of its original August 2009 prospectus, and we use a 7%
pretax cost of debt in keeping with its credit agreement in the same prospectus.
$2.07b Equity Value
To get to an equity value we add back cash of $142m listed in its prospectus as of 12/31/2010 and subtract debt of
$760m that Standard & Poor's noted was outstanding on its balance sheet as of 3/31/2011. This generates an equity
value of $2.07b. Interestingly, this independently generated value is exactly in line with the $2.07b valuation that was
implied by eBay, Inc.'s (EBAY) fair value estimate of $620m for its 30% equity stake as noted in Note 4 of its 10K filed in
April 2011.
All in all, we think this is a reasonable base case forecast and valuation assumptions as they takes into account what we
think will be the inevitable and rapid ascent of competition in the app-driven VoIP space.
Page 3

Base Case
Skype as a Division of Microsoft
As a division of Microsoft, Skype will benefit in three key ways: 1) a larger addressable market; 2) revenue synergies;
and 3) a stronger capital structure.
We note up front that by far the largest positive impact to valuation is generated by the stronger capital Microsoft
brings. This is not simply spreadsheet magic; Microsoft can drastically lower internal hurdle rates and funding costs for
Skype related projects and when compounded over years this has a huge positive impact.
Larger Addressable Market Provided by Microsoft Creates $683m in Equity Value
The impact of a larger addressable market is straight forward enough. Assuming that there are 1.0-1.5b Microsoft Office
product licenses in the world plus millions of other Microsoft products, we think Skype has a reasonable chance of
growing its registered base by at least a portion of that. For this base case forecast, we conservatively assume
registered users grows to 1.46b by 2013 versus the 1.364b we were forecasting for Skype standalone -- about only a
100m difference. After that, we assume rate of annual growth for registered users, as well as the same proportion of
paying users to connected users and registered users.
Revenue Synergies Adds an Estimated $1.5b in Equity Value
In addition to being able to address a larger market, we think there degree of synergies will be realized with regards to
"stickiness" factors. That is, we think there is some amount of sales Microsoft will keep that otherwise would have been
lost as a result of Skype integration, and interestingly vice versa as well. We estimate such synergies as 0.0125% of
MSFT sales in 2011, growing to 0.1% of sales by 2014 and moving to 0.5% by 2021. What we have done here is to simply
recognize that there is an obvious and naturally incremental benefit to sales for the combined companies.
Stronger Capital Structure Generates an Estimated $3.2b in Equity Value
We estimate Microsoft's cost of capital at about 8.4%, with a cost of equity at 8.8% and pretax cost of debt at 3.7%. This
is drastically better than the 17% discount rate Skype itself in its August 2009 prospectus. Assuming the 17% as the cost
of Skype equity and 7% as the cost of debt, and a debt-to-capital ratio of 8.9%, we estimate Skype's weighted average
cost of capital was about 16%.
Skype as a division of Microsoft may be able to realize an improved cost of equity, perhaps in line with Vonage (VG)
which we estimate at 12%. Together with having access to low cost of debt of about 3.7% we think Skype's internal
WACC will subsequently improve to 11.2%. This has a drastic immediate impact into implied valuations for Skype -- as
much as $2.9b when incorporating the impact of a lower hurdle rate on internal projects and reduced risk of bankruptcy
(or project failure).
In summary, we think that by acquiring Skype, Microsoft can almost instantaneously lower the required rate of return
for Skype related projects to rough 11% from 16%. This 5% benefit to Skype's capital structure would have a $3.2b
positive impact to our base case forecast.
By Virtue of Size and Scope, Microsoft Immediately Adds $5.4b of Value to Skype
A Skype-Microsoft combination is worth about $7.5b on a base case forecast, or about $5.4b above a standalone value
for the company. As a result, if our base case scenario comes to pass Microsoft will have found itself to have overpaid
for the acquisition by about $1.0b.
Page 4

Best Case
Our best case forecasts are extremely aggressive. We estimate Skype sales growth at a 32% CAGR, as average monthly
paying subscribers jumps nearly 18 times to 155.6m in 2021 with monthly average revenue per user (ARPU) rising from
$8.08 in 2010 to $9.29 in 2021, driven by increased minutes of use and eventual stability in revenue per minute. This
scenario is extremely aggressive but conceivable.
Our best case gross margin and operating margin assumptions are aggressive but within the realm of possibility at 64%
and 38.5%, respectively. We do not see such margins occurring unless the competitive landscape stays fairly wide open.
We are still a bit conservative with regards to possible synergies as far as a best-case estimate entails. By 2021 we are
only assuming $1.3b in incremental operating profit from synergies related to sales stickiness. There is no change to the
ratios used to forecast Capital Spending and associated Depreciation.
$31.4b Equity Value
Given all of these assumptions, we think free cash flow has a reasonable chance of reaching $6.4b by 2021 and growing
at a 2.5% terminal growth rate thereafter. Applying an unlevered cost of equity of 12% and a pretax interest rate of
3.7% to this cash flow stream generates a $31.6b value. Minor other adjustments for interest tax shields, probability of
project failure and backing out cash and debt gets us to a $31.4b equity value or $3.83/share to Microsoft.
Net of the $8.5b cash Microsoft paid for Skype, the net value creation would be $22.8b or about $2.71/share.
Worst Case
Our worst case forecasts are also extremely aggressive, and probably in line with much of the collective market's initial
analysis conducted within minutes of the Skype acquisition announcement. In this scenario, we estimate Skype sales
growth declining at a -2.1% CAGR despite average monthly paying subscribers growing 2.6 times to 22.9m in 2021 as we
embed a sharp ARPU decline from $8.08 in 2010 to $2.33 in 2021. The decline in ARPU assumes slowing minutes of use
and sharply revenue per minute declining at a mid-teen rate near the end of the forecast period to $0.02/minute in
2021.
In keeping with its reputation for destroying every acquisition it touches (we are still personally bitter about the littleknown Onfolio acquisition in 2006), we assume Microsoft realizes no synergies from the acquisition and in fact sales
suffers adversely from the negative perception and customer experience of its Skype service. There is no change to the
ratios used to forecast Capital Spending and associated Depreciation.
Negative Equity Value

In this adverse scenario, we think free cash flow may turn negative in the last year of the forecast period to -$68m in
2021. Discounting the stream of cash flows and adding a negative terminal value gets us to a $373m value for the
unlevered firm and negative -$165m for the equity stake.
Net of the $8.5b cash Microsoft paid for Skype, the net value lost to Microsoft would be about -$8.4b or -$0.99/share.
Page 5

Appendix
Ranking Data as of May 6, 2011
Microsoft Corporation
NasdaqGS:MSFT
Information Technology
Systems Software
Ascendere Ranking
5 = Best
Rank
Relative Value
5
Operating Momentum
1
Analyst Revisions Momentum 1
Fundamental Quality
5
Price 05/10/11
Shares
Market Cap
CY1 Consensus EPS Est.

CY2 Consensus EPS Est.
Latest Annualized Dividend
25.49
8,433
217,818
$
$
$
2.59
2.97
0.64
Cash
Debt
Other
Enterprise Value
CY1 PE
CY2 PE
Div Yield
(48,717)
13,165
182,266
9.8
8.6
2.5%
EV/LTM EBITDA
Price/Book
Total Capital
Debt/Capital
Debt/Enterprise Value
6.1
4.1
$ 66,617
-53%
7%
Source: Capital IQ data and estimates, and Ascendere Associates LLC data and estimates.
Page 6

05/10/11
Systems Software
NasdaqGS:MSFT
$25.49 $0.64 / 2.5%
Stock price
Shares outstanding
Market value
EPS
CY +1 estimate
CY +2 estimate
EPS
$
$
2.59
2.98
PE
9.8
8.6
BPVM Adjusted = (31.8+17.4)/(3.6+2.0)
0.8
0.7
8.7
12.0%
Next 5yr EPS growth estimate
EBIT/ Cap
EBITDA/
Cap
Next year estimate
37.3%
Next quarter estimate
44.1%
Latest
Year ago
8,433
217,818
Cash & equivalents

Total debt
Preferred equity
Minority interest
Other
PEG
25.49
Enterprise Value
48,717
13,165
1,524
Debt / Capital
Debt / Op Capital
Debt / EV
EV / Op Capital
183,790
LTM
Trend
Qtr
Trend*
(5)
(1)
(2)
(4)
EBITDA margin
(2)
(2)
(2)
EBIT margin (or EBT)
(3)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
LTM EBITDA/Capital
(5)
(2)
ROIC
(2)
(2)
8.7
Total
(15)
(15)
(2)
Source: Capital IQ data and estimates, Ascendere Associates data and estimates.
Percent of total possible
-27%
-10%
-3%
NasdaqGS:MSFT
9 qtr avg
ROIC
NasdaqGS:MSFT
Next 5 Qtrs
LTM
41.0%
31.3%
Revenue growth
48.7%
30.0%
Gross margin
47.7%
52.2%
30.7%
SG&A margin
47.9%
52.2%
53.0%
56.6%
24.6%
27.4%
22.0%
17.3%
8.0%
216.2%
Recurring Earnings
Growth
NOPLAT
Next yr, y/y estimate
-15.5%
-15.7%
4.5%
Next Q, y/y estimate
-11.8%
-11.7%
2.6%
EP
-0.5%
-1.5%
24.8%
Free Cash Flow
-21.2%
-21.0%
-8.9%
-8.6%
-7.7%
12.0%
Latest Q, y/y
Last yr, y/y
Lastest Q vs 9Q avg
BPVM Ratio
Implied by Consensus Average
Estimate
Estimate
Estimate
Estimate
Estimate
NasdaqGS:MSFT
6/29/12
3/30/12
12/31/11
9/30/11
6/30/11
3/31/11
12/31/10
9/30/10
6/30/10
3/31/10
NOPLAT
26,774
26,129
25,472
24,875
24,979
25,209
28,169
28,651
22,899
19,087
Operating Capital
85,683
85,541
85,360
85,299
85,255
84,991
83,648
82,565
79,940
79,397
ROIC (NOPLAT / Operating Capital)

31.3%
30.6%
30.0%
29.5%
30.0%
30.7%
34.9%
36.0%
29.2%
24.6%
-12%
-3%
23%
19%
5%
24,967
23,806
22,504
18,220
15,788
Sequential growth
2%
2%
2%
-2%
-2%
# EBIT Forecasts
22
23
23
23
24
EBIAT Trailing 12 months

Depreciation
Capital Spending, recurring
Adjstd Working Capital Investment
Free cash flow to the entity
27,089
26,275
24,818
25,122
25,637
2,919
2,887
2,874
2,793
2,780
2,629
2,603
2,555
2,507
2,365
(2,741)
(2,826)
(2,723)
(2,533)
(2,511)
(2,471)
(2,221)
(2,106)
(1,977)
(2,086)
(1,036)
(1,283)
23,842
(1,132)
23,056
(1,338)
21,615
(572)
18,178
231
16,298
(606)
26,662
(611)
25,725
(730)
24,238
(738)
24,644
24,869
Source: Capital IQ data and estimates, Ascendere Associates data and estimates.
Page 7

Price
25.56
NTM EPS $ 2.66
NTM PE
9.6
R/R
4.7 to 1
MSFT
Systems Software
Price / Earnings (NTM) vs. Stock Price

45.0
$40
40.0
$35
35.0
$30
30.0
$25
P
/
E
25.0
$20
20.0
$15
15.0
P
r
i
c
e
$10
10.0
$5
5.0
P/E
Max up to ten years

04/30/01
Max PE
Average PE
Min PE
to
38.7
19.5
8.5
Three years
05/02/11
06/11/01
03/09/09
05/05/08
Max PE
Average PE
Min PE
-1 St. Dev.
05/02/11
06/11/01
03/09/09
05/03/10
Max PE
Average PE
Min PE
J-11
A-11
J-10
O-10
J-10
A-10
J-09
O-09
J-09
A-09
J-08
Stock Price
One year
to
38.7
19.5
8.5
O-08
J-08
A-08
J-07
O-07
J-07
+1 St. Dev.
A-07
J-06
O-06
J-06
A-06
J-05
Average
O-05
J-05
A-05
J-04
O-04
J-04
A-04
J-03
O-03
J-03
A-03
J-02
O-02
J-02
A-02
J-01
O-01
$-
A-01
0.0
One year historically implied target range

to
14.1
10.8
9.6
05/02/11
05/03/10
04/18/11
NTM
EPS
Max EPS $ 2.90
Average EPS $ 2.66
Min EPS $ 2.33
Target
$
$
41
$
29
$
22
25.56
59%
13%
-13%
Source: Capital IQ data and estimates.
Page 8

Ticker:
Company:
MSFT
MSFT
12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010
5/10/2011
Last 5 years
TEV / NTM Total Revenue
Average
High
Low
Close
4.8x
5.5x
3.8x
5.1x
4.7x
5.4x
4.2x
5.2x
3.5x
5.2x
2.1x
2.4x
3.0x
4.0x
1.9x
3.9x
3.1x
4.0x
2.5x
3.0x
2.7x
3.1x
2.5x
2.5x
3.5x
5.5x
1.9x
2.5x
TEV / NTM EBITDA
Average
High
Low
Close
11.1x
12.7x
9.0x
12.5x
11.2x
13.2x
9.5x
12.4x
8.0x
12.4x
5.1x
5.7x
7.6x
10.0x
4.8x
9.7x
7.6x
10.1x
5.9x
7.0x
6.4x
7.3x
5.9x
5.9x
8.4x
13.2x
4.8x
5.9x
TEV / NTM EBIT
Average
High
Low
Close
12.2x
13.7x
10.1x
13.6x
12.0x
14.2x
10.5x
13.2x
8.8x
13.2x
5.6x
6.4x
8.7x
11.4x
5.5x
11.1x
8.3x
11.3x
6.5x
7.6x
7.0x
7.9x
6.4x
6.4x
9.3x
14.2x
5.5x
6.4x
Price / NTM EPS
Average
High
Low
Close
18.4x
20.4x
16.1x
20.2x
18.0x
21.1x
16.0x
19.4x
13.1x
19.4x
8.5x
9.6x
12.9x
16.2x
8.5x
15.7x
12.3x
16.0x
10.0x
11.3x
10.3x
11.6x
9.5x
9.7x
13.8x
21.1x
8.5x
9.7x
Source: Capital IQ
Page 9

Skype-reported Adjustments to EBITDA

Net (loss)/income
Income tax (benefit)/ expense
Interest expense
Interest (income) and other expense, net
Depreciation and amortization
Stock-based compensation
Realized loss on credit agreement
Management Services Agreements with shareholders
Acquisition transaction fees
Skype Acquisition transaction bonuses
Transition Services Agreement
Excluded bonus and severance
Joltid litigation settlement
Other litigation settlements
Separation costs
Foreign exchange gains and losses
Dispute with payment service provider
Non-capitalizable expenses attributable to security offering
Skype-reported Adjusted EBITDA
As a percentage of revenue
Ascendere Assumptions for Recurring EBIT

Net (loss)/income
Income tax (benefit)/ expense
Interest expense
Interest (income) and other expense, net
Depreciation and amortization
Stock-based compensation
Realized loss on credit agreement
Management Services Agreements with shareholders
Acquisition transaction fees
Skype Acquisition transaction bonuses
Transition Services Agreement
Excluded bonus and severance
Joltid litigation settlement
Other litigation settlements
Separation costs
Foreign exchange gains and losses
Dispute with payment service provider
Non-capitalizable expenses attributable to security offering
Ascendere-estimated Recurring EBIT
As a percentage of revenue
2008
41,606
2009
(417,547)
2010
(6,905)
(8,447)
(10,297)
75,534
12,826
(410)
(334)
110,478
(21,398)
89,644
(2,943)
156,543
14,746
14,177
1,118
1,755
343,826
2,928
2,054
(8)
184,895
(49,787)
68,645
(4,817)
161,297
15,950
13,513
14,835
1,229
2,463
15,315
(784)
11,312
12,165
9,247
669
264,347
20.0%
25.7%
30.7%
2008
41,606
2009
(417,547)
2010
(6,905)
(8,447)
(10,297)
(21,398)
89,644
(2,943)
(49,787)
68,645
(4,817)
14,177
1,118
1,755
343,826
2,928
14,835
1,229
2,463
15,315
(784)
11,560
669
40,863
(410)
22,452
4.1%
1.6%
4.8%
Source: SEC filings and Ascendere Associates assumptions
Page 10

Skype S. r.l.
NasdaqGS:MSFT
Adjusted Present Value Model

Base Case
Unlevered Cost of Equity
Pretax Cost of Debt
Terminal growth rate
Current WACC
12.0%
3.7%
2.5% Tax Rate
11.2%
Debt to Capital
22%
8.9%
Discount unlevered free cash flows at the unlevered cost of equity to determine value of the unlevered firm
Period
Adjusted Present Value
2005
2006
2007
2008
2009
2010
0.75
2011E
1.75
2012E
2.75
2013E
3.75
2014E
4.75
2015E
5.75
2016E
6.75
2017E
7.75
2018E
8.75
2019E
9.75
2020E
10.75
2021E
6,454
-
6,528
1.14%
6,602
1.14%
6,677
1.14%
6,753
1.14%
6,830
1.14%
6,918
1.28%
6,987
1.00%
7,056
1.00%
7,126
1.00%
7,197
1.00%
7,265
0.94%
7,332
0.94%
7,401
0.94%
7,470
0.94%
7,540
0.94%
7,611
0.94%
159
283
442
6.8%
307
351
658
10.0%
458
413
871
13.0%
703
471
1,174
17.4%
940
555
1,495
21.9%
1,100
649
1,749
25.3%
1,260
744
2,004
28.7%
1,424
841
2,264
32.1%
1,572
928
2,500
35.1%
1,674
988
2,662
37.0%
1,735
1,024
2,760
38.0%
1,797
1,061
2,859
39.0%
1,861
1,099
2,960
40.0%
1,925
1,137
3,062
41.0%
1,991
1,175
3,166
42.0%
2,057
1,215
3,272
43.0%
Registered Skype users (millions)

Registered Skype Users, Annual Growth
Skype % penetration of global population
Skype % penetration of BB subscriptions
217
0.0
3.3%
33.0%
325
49.8%
4.9%
37.3%
474
45.8%
7.0%
40.4%
663
39.9%
9.7%
44.3%
862
30.0%
12.5%
49.3%
1,120
30.0%
16.0%
55.9%
1,457
30.0%
20.6%
64.3%
1,704
17.0%
23.9%
68.2%
1,909
12.0%
26.5%
71.7%
2,081
9.0%
28.6%
75.4%
2,247
8.0%
30.6%
78.6%
2,404
7.0%
32.5%
81.2%
2,549
6.0%
34.1%
83.2%
2,676
5.0%
35.5%
84.5%
2,796
4.5%
36.7%
85.5%
Average monthly Skype connected users (millions)

% of Skype registered users
52
24.0%
75
23.1%
105
22.2%
145
21.9%
186
21.6%
258
23.0%
335
23.0%
392
23.0%
439
23.0%
479
23.0%
517
23.0%
553
23.0%
586
23.0%
615
23.0%
643
23.0%
Average monthly Skype paying users (millions)

% of Skype connected users
4.6
8.8%
5.8
7.7%
7.3
7.0%
8.8
6.1%
11.2
6.0%
15.7
6.1%
21.4
6.4%
27.8
7.1%
33.4
7.6%
38.8
8.1%
44.4
8.6%
50.3
9.1%
55.7
9.5%
60.9
9.9%
66.2
10.3%
Annual revenue per paying user

Monthly revenue per paying user (ARPU)
Annual growth
81
6.75
102
8.50
25.9%
98
8.17
-3.9%
97
8.08
-1.0%
97
8.09
0.1%
93
7.72
-4.6%
88
7.32
-5.1%
83
6.94
-5.1%
79
6.59
-5.1%
75
6.26
-4.9%
71
5.96
-4.9%
68
5.66
-4.9%
65
5.39
-4.9%
61
5.12
-4.9%
58
4.87
-4.9%
Billing minutes (billions)

Annual billing minutes per paying user
Monthly billing minutes per paying user
Annual billing minute growth per user
4.1
891
74
6.9
1,190
99
33.5%
10.7
1,466
122
23.2%
12.8
1,455
121
-0.8%
16.1
1,445
120
-0.7%
23.1
1,467
122
1.5%
32.1
1,496
125
2.0%
42.5
1,526
127
2.0%
51.9
1,556
130
2.0%
61.7
1,591
133
2.3%
72.3
1,627
136
2.3%
83.7
1,664
139
2.3%
94.7
1,701
142
2.3%
106.0
1,740
145
2.3%
117.8
1,779
148
2.3%
0.093
0.080
-14.1%
0.067
-15.9%
0.067
0.0%
0.067
0.0%
0.063
-6.0%
0.059
-7.0%
0.055
-7.0%
0.051
-7.0%
0.047
-7.0%
0.044
-7.0%
0.041
-7.0%
0.038
-7.0%
0.035
-7.0%
0.033
-7.0%
Global population
Annual growth
United Nations
Mobile broadband subscribers

Fixed broadband subscribers
Global broadband subcribers
Historical data: ITU
BB subscriptions / global population
73
216
289
4.5%
Revenue per minute

Revenue per minute annual growth
Source: Company reports, United Nations, ITU, Ascendere Associates estimates.
Skype as a Division of Microsoft -- Base Case

Skype Revenue
Sales Growth
2005
72
-
2006
194
169%
2007
382
97%
2008
551
45%
2009
719
30%
2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E
860
1,084
1,456
1,884
2,319
2,638
2,914
3,177
3,421
3,599
3,745
3,872
20%
26%
34%
29%
23%
14%
10%
9%
8%
5%
4%
3%
Gross Profit
Gross Margin
20
28%
54
28%
152
40%
258
47%
375
52%
444
52%
574
53%
786
54%
1,036
55%
1,299
56%
1,503
57%
1,690
58%
1,874
59%
2,052
60%
2,160
60%
2,247
60%
2,323
60%
Sales & Marketing

Product Development
General & Administrative
Amortization of Intangible Assets
Operating Expenses
27
12
17
14
70
60
39
38
60
197
64
23
42
66
195
83
34
49
70
235
119
45
73
114
351
132
72
95
114
414
163
87
119
114
483
218
116
146
114
595
283
151
170
114
717
325
162
186
114
787
343
171
185
114
813
364
182
204
66
816
397
200
222
820
410
222
257
889
450
243
270
963
487
281
281
1,049
513
300
290
1,104
Skype Reported Operating Profit
(50)
(143)
(43)
23
24
21
92
191
319
512
690
873
1,055
1,163
1,197
1,198
1,220
38.0%
16.1%
24.2%
19.0%
-69.0%
30.9%
20.1%
19.5%
31.1%
-73.9%
16.9%
6.0%
11.1%
17.2%
-11.3%
15.0%
8.0%
10.0%
7.9%
13.1%
15.0%
8.0%
9.0%
6.1%
16.9%
14.0%
7.0%
8.0%
4.9%
22.1%
13.0%
6.5%
7.0%
4.3%
26.2%
12.5%
6.3%
7.0%
2.3%
30.0%
12.5%
6.3%
7.0%
0.0%
33.2%
12.0%
6.5%
7.5%
0.0%
34.0%
12.5%
6.8%
7.5%
0.0%
33.3%
13.0%
7.5%
7.5%
0.0%
32.0%
13.3%
7.8%
7.5%
0.0%
31.5%
39,788
44,282 51,122 60,420 58,437 62,484 68,732 73,544 66,189 72,808 77,905 70,114 77,126 82,525 74,272 81,699 87,418
11.3% 15.4% 18.2%
-3.3%
6.9% 10.0%
7.0% -10.0% 10.0%
7.0% -10.0% 10.0%
7.0% -10.0% 10.0%
7.0%
Sales & Marketing

Product Development
Operating Margin
MSFT Base Revenue
MSFT Base Sales Growth
% MSFT Base Sales "saved" by Skype
Skype-MSFT Synergies
plus
less
less
less
15.1%
6.1%
8.8%
12.7%
4.1%
16.6%
6.3%
10.1%
15.9%
3.3%
15.3%
8.4%
11.1%
13.3%
2.4%
15.0%
8.0%
11.0%
10.5%
8.5%
0.0%
-
0.0%
-
0.0%
-
0.0%
-
0.0%
-
0.0%
-
0.0%
9
0.0%
18
0.1% 0.100%
33
73
0.1%
97
0.2%
110
Adjusted Operating Profit
(50)
(143)
(43)
23
24
21
100
210
352
585
788
983
Cash tax rate

Cash income taxes
Earnings Before Interest After Taxes
nmf
(50)
nmf
(143)
nmf
(43)
nmf
23
nmf
24
nmf
21
22%
22
87
22%
46
164
22%
77
275
22%
129
456
22%
173
614
22%
216
767
(50)
44
(99)
76
26
59
79
(5)
(116)
(19)
157
(12)
200
368
161
(35)
11
157
174
(44)
(50)
166
194
(59)
(134)
164
217
(77)
(174)
241
241
(94)
(49)
553
258
(107)
(56)
709
Depreciation & Amortization

Adj Working Capital Investment
Residual value of free cash flows
Free cash flow plus residual value
Present value of future cash flows
Value of unlevered firm
7,740
Memo:
Adjusted working capital
% cash estimated used in WC
100%
Gross intangible assets

Net intangible assets
Source: Company reports, United Nations, ITU, Ascendere Associates estimates.
0.2%
151
1,205
0.2%
201
0.3%
227
0.4%
312
0.5%
417
1,364
1,423
1,510
1,637
22%
265
940
22%
300
1,064
22%
313
1,110
22%
332
1,178
22%
360
1,277
225
(119)
(56)
818
174
(129)
(56)
928
187
(139)
(56)
1,056
197
(147)
(56)
1,104
205
(153)
(56)
1,174
212
(158)
(56)
1,274
13,750
15,025
166
164
241
553
709
818
928
1,056
1,104
1,174
114
134
177
362
414
426
432
439
410
389
4,443
55
10
(16)
100
(100)
(110)
(60)
74
248
297
353
409
465
521
577
633
689
263
236
188
341
113
806
788
806
638
806
523
806
409
806
295
806
180
806
66
806
-
806
-
806
-
806
-
806
-
806
-
Discount interest tax shields at cost of debt to determine value of interest tax shields
Skype as a Division of Microsoft -- Base Case

2005
2006
2007
2008
2009
2010
0.75
2011E
1.75
2012E
2.75
2013E
3.75
2014E
4.75
2015E
5.75
2016E
6.75
2017E
7.75
2018E
8.75
2019E
9.75
2020E
10.75
2021E
Total Debt
Cash interest expense as % of Debt
Cash interest expense
Interest tax shield
Residual value of interest tax shields
Interest tax shields plus residual value
777 $ 686 $ 760 $ 760 $ 760 $ 760 $ 760 $ 760 $ 760 $ 760 $ 760 $ 760 $ 760
3.7%
3.7%
3.7%
3.7%
3.7%
3.7%
3.7%
3.7%
3.7%
3.7%
3.7%
3.7%
27
27
28
28
28
28
28
28
28
28
28
28
6
6
6
6
6
6
6
6
6
6
6
528
6
6
6
6
6
6
6
6
6
6
535
Cost of debt
Value of interest tax shields
411
Cost of Potential Bankruptcy

Probability of bankruptcy
Negative impact to PV
Unlevered firm value
Expected bankruptcy costs
1.0%
35.0%
7,740
(27)
Valuation
Value of unlelvered firm
Enterprise value
7,740
411
(27)
8,125
Cash
Other non-operating assets
Debt
Preferred
Minority Interest
Other non operating liabilities
Value of equity
142
(760)
7,507
Shares outstanding
Value per share
Source: Ascendere Associates LLC
8,432.8
0.89
3.7%
4
3.7%
6
3.7%
6
3.7%
5
3.7%
5
3.7%
5
Current Value
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Current ValueSkype
11.5%
$as0.92
a Division
$ 0.96
of Microsoft0.115
$ 1.05
3.5%
Current ValueSkype
12.0%
$as0.85
a Division
$ 0.89
of Microsoft0.12
$ 0.95
3.7%
Current ValueSkype
12.5%
$as0.79
a Division
$ 0.83
of Microsoft0.125
$ 0.87
3.9%
Value 12+ months

Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Value 12+
11.5%
monthsSkype
$ 0.99
as a$Division
1.04 of
$ Microsoft0.115
1.13
3.5%
Value 12+
12.0%
monthsSkype
$ 0.92
as a$Division
0.96 of
$ Microsoft0.12
1.03
3.7%
Value 12+
12.5%
monthsSkype
$ 0.86
as a$Division
0.90 of
$ Microsoft0.125
0.95
3.9%
3.7%
5
3.7%
5
3.7%
5
3.7%
4
3.7%
362
Skype S. r.l.
NasdaqGS:MSFT
Skype Stand-Alone
Base Case
Pretax Cost of Debt
Current WACC
17.0%
7.0%
2.5%
16.0%
Tax Rate
Debt to Capital
22%
8.9%
Period
2010
Skype Revenue
Sales Growth
72
2006
2007
2008
2009
2010
0.75
2011E
1.75
2012E
2.75
2013E
3.75
2014E
4.75
2015E
5.75
2016E
6.75
2017E
7.75
2018E
8.75
2019E
9.75
2020E
10.75
2021E
194
169%
382
97%
551
45%
719
30%
860
20%
1,023
19%
1,223
20%
1,459
19%
1,757
20%
1,944
11%
2,107
8%
2,252
7%
2,374
5%
2,443
3%
2,496
2%
2,533
1%
(50)
-69.0%
(143)
-73.9%
(43)
-11.3%
23
4.1%
24
3.3%
21
2.4%
80
7.8%
155
12.7%
251
17.2%
413
23.5%
537
27.6%
655
31.1%
770
34.2%
807
34.0%
812
33.3%
799
32.0%
798
31.5%
(50)
(143)
(43)
23
24
21
80
155
251
413
537
655
770
807
812
799
798
Cash tax rate

Cash income taxes (benefit)
nmf
(50)
nmf
(143)
nmf
(43)
nmf
23
nmf
24
nmf
21
22%
18
62
22%
34
121
22%
55
195
22%
91
322
22%
118
419
22%
144
511
22%
169
601
22%
178
630
22%
179
634
22%
176
623
22%
176
622
76
79
(5)
(116)
(19)
157
(12)
200
368
161
(35)
11
157
170
(42)
(50)
141
181
(50)
(120)
132
194
(59)
(143)
187
210
(72)
(48)
413
221
(79)
(53)
507
181
(86)
(53)
553
123
(92)
(53)
579
130
(97)
(53)
609
134
(100)
(53)
614
136
(102)
54
712
141
132
187
413
507
553
579
609
614
712
138
(103)
55
713
5,040
5,752
94
101
122
229
240
224
201
180
156
154
1,064

Operating Margin
plus
less
less
less
2005

(50)
Valuation
Enterprise value
2,765
215
(290)
2,689
Cash
Debt
Preferred
Minority Interest
Value of equity
142
(760)
2,072
Shares outstanding
Value per share
8,432.8
0.25
44
(99)
26
59
Current Value
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Current ValueSkype
16.5%
$ Stand-Alone0.165
0.25 $ 0.26 $ 0.27
6.8%
Current ValueSkype
17.0%
$ Stand-Alone0.17
0.24 $ 0.25 $ 0.25
7.0%
Current ValueSkype
17.5%
$ Stand-Alone0.175
0.23 $ 0.23 $ 0.24
7.2%
8432.8
Value 12+ months

Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Value 12+
16.5%
monthsSkype
$ 0.27
Stand-Alone0.165
$ 0.28 $ 0.29
6.8%
Value 12+
17.0%
monthsSkype
$ 0.26
Stand-Alone0.17
$ 0.26 $ 0.27
7.0%
Value 12+
17.5%
monthsSkype
$ 0.24
Stand-Alone0.175
$ 0.25 $ 0.26
7.2%
Skype S. r.l.
NasdaqGS:MSFT
Skype owned by MSFT

Worst Case
Pretax Cost of Debt
Current WACC
12.0%
3.7%
2.5%
11.2%
Tax Rate 22.0%

Debt to Capital
8.9%
Period
2010
Skype Revenue
Sales Growth
72
2006
2007
2008
2009
2010
0.75
2011E
1.75
2012E
2.75
2013E
3.75
2014E
4.75
2015E
5.75
2016E
6.75
2017E
7.75
2018E
8.75
2019E
9.75
2020E
10.75
2021E
194
169%
382
97%
551
45%
719
30%
860
20%
1,062
23%
1,291
22%
1,377
7%
1,604
17%
1,602
0%
1,452
-9%
1,280
-12%
1,110
-13%
933
-16%
776
-17%
642
-17%
(50)
-69.0%
(143)
-73.9%
(43)
-11.3%
23
4.1%
24
3.3%
21
2.4%
66
6.2%
105
8.1%
120
8.7%
190
11.9%
238
14.9%
271
18.7%
297
23.2%
278
25.0%
208
22.3%
147
19.0%
106
16.5%
(50)
(143)
(43)
23
24
21
(128)
(62)
(127)
(22)
(96)
23
(69)
121
(55)
184
(28)
243
(3)
294
(61)
147
(151)
(3)
(234)
(128)
Cash tax rate

nmf
(50)
nmf
(143)
nmf
(43)
nmf
23
nmf
24
nmf
21
22.0%
(14)
(177)
22.0%
(5)
(17)
22.0%
5
18
22.0%
27
94
22.0%
40
143
22.0%
54
190
22.0%
65
229
22.0%
68
241
22.0%
32
115
22.0%
(1)
(3)
22.0%
(28)
(100)
76
79
(5)
(116)
(19)
157
(12)
200
368
161
(35)
11
157
172
(43)
(50)
(98)
185
(53)
(122)
(6)
190
(56)
(130)
22
202
(65)
(47)
185
202
(65)
(47)
233
146
(59)
(47)
230
70
(52)
(47)
200
61
(45)
40
297
51
(38)
34
162
42
(32)
28
36

Operating Margin
plus
less
less
less
2005

(50)
Valuation
Enterprise value
Cash
Debt
Preferred
Minority Interest
Value of equity
Shares outstanding
Value per share
373
411
(2)
782
(98)
(6)
22
185
233
230
200
297
162
36
(67)
(5)
16
121
136
120
93
124
60
12
(236)
44
(99)
26
59
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Current ValueSkype
11.5%
$owned
0.01 by$ MSFT0.115
0.03 $ 0.08
3.5%
Current ValueSkype
12.0%
$owned
0.01 by$ MSFT0.12
0.02 $ 0.05
3.7%
Current ValueSkype
12.5%
$owned
0.00 by$ MSFT0.125
0.01 $ 0.03
3.9%
Value 12+ months
8432.8
32
310
35
(26)
23
(68)
(731)
(799)
Current Value
142
(760)
165
8,432.8
0.02
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Value 12+
11.5%
monthsSkype
$ 0.01
owned
$ 0.03
by MSFT0.115
$ 0.08
3.5%
Value 12+
12.0%
monthsSkype
$ 0.01
owned
$ 0.02
by MSFT0.12
$ 0.05
3.7%
Value 12+
12.5%
monthsSkype
$ 0.00
owned
$ 0.01
by MSFT0.125
$ 0.03
3.9%
Skype S. r.l.
NasdaqGS:MSFT
Skype owned by MSFT

Bad Case
Pretax Cost of Debt
Current WACC
12.0%
3.7%
2.5%
11.2%
Tax Rate 22.0%

Debt to Capital
8.9%
Period
2010
Skype Revenue
Sales Growth
72
2006
2007
2008
2009
2010
0.75
2011E
1.75
2012E
2.75
2013E
3.75
2014E
4.75
2015E
5.75
2016E
6.75
2017E
7.75
2018E
8.75
2019E
9.75
2020E
10.75
2021E
194
169%
382
97%
551
45%
719
30%
860
20%
1,073
25%
1,371
28%
1,549
13%
1,907
23%
2,035
7%
2,043
0%
2,013
-1%
1,956
-3%
1,853
-5%
1,737
-6%
1,620
-7%
(50)
-69.0%
(143)
-73.9%
(43)
-11.3%
23
4.1%
24
3.3%
21
2.4%
79
7.3%
146
10.7%
195
12.6%
324
17.0%
420
20.6%
501
24.5%
568
28.2%
577
29.5%
514
27.8%
443
25.5%
389
24.0%
(50)
(143)
(43)
23
24
21
(60)
19
(55)
92
(33)
163
324
19
439
38
539
70
637
112
689
72
587
61
504
61
450
Cash tax rate

nmf
(50)
nmf
(143)
nmf
(43)
nmf
23
nmf
24
nmf
21
22.0%
4
(45)
22.0%
20
71
22.0%
36
127
22.0%
71
253
22.0%
97
342
22.0%
118
420
22.0%
140
497
22.0%
152
537
22.0%
129
458
22.0%
111
393
22.0%
99
351
76
79
(5)
(116)
(19)
157
(12)
200
368
161
(35)
11
157
173
(44)
(50)
34
189
(56)
(128)
77
199
(63)
(144)
119
219
(78)
(49)
345
226
(83)
(53)
432
178
(83)
(53)
462
110
(82)
(53)
473
107
(80)
(53)
512
101
(75)
50
533
95
(71)
47
464

Operating Margin
plus
less
less
less
2005

(50)
Valuation
Enterprise value
3,130
411
(14)
3,528
Cash
Debt
Preferred
Minority Interest
Value of equity
142
(760)
2,910
Shares outstanding
Value per share
8,432.8
0.35
34
77
119
345
432
462
473
512
533
464
89
(66)
44
417
4,500
4,917
23
63
87
225
252
241
220
213
198
154
1,454
44
(99)
26
59
Current Value
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Current ValueSkype
11.5%
$owned
0.35 by$ MSFT0.115
0.38 $ 0.44
3.5%
Current ValueSkype
12.0%
$owned
0.32 by$ MSFT0.12
0.35 $ 0.39
3.7%
Current ValueSkype
12.5%
$owned
0.30 by$ MSFT0.125
0.32 $ 0.35
3.9%
Value 12+ months
8432.8
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Value 12+
11.5%
monthsSkype
$ 0.37
owned
$ 0.40
by MSFT0.115
$ 0.47
3.5%
Value 12+
12.0%
monthsSkype
$ 0.35
owned
$ 0.37
by MSFT0.12
$ 0.41
3.7%
Value 12+
12.5%
monthsSkype
$ 0.32
owned
$ 0.34
by MSFT0.125
$ 0.37
3.9%
Skype S. r.l.
NasdaqGS:MSFT

Base Case
Pretax Cost of Debt
Current WACC
12.0%
3.7%
2.5%
11.2%
Tax Rate
Debt to Capital
22%
8.9%
Period
2010
Skype Revenue
Sales Growth
72
-
2006
2007
2008
2009
2010
0.75
2011E
1.75
2012E
2.75
2013E
3.75
2014E
4.75
2015E
5.75
2016E
6.75
2017E
7.75
2018E
8.75
2019E
9.75
2020E
10.75
2021E
194
169%
382
97%
551
45%
719
30%
860
20%
1,084
26%
1,456
34%
1,884
29%
2,319
23%
2,638
14%
2,914
10%
3,177
9%
3,421
8%
3,599
5%
3,745
4%
3,872
3%
(50)
-69.0%
(143)
-73.9%
(43)
-11.3%
23
4.1%
24
3.3%
21
2.4%
92
8.5%
191
13.1%
319
16.9%
512
22.1%
690
26.2%
873
30.0%
1,055
33.2%
1,163
34.0%
1,197
33.3%
1,198
32.0%
1,220
31.5%
(50)
(143)
(43)
23
24
21
9
100
18
210
33
352
73
585
97
788
110
983
151
1,205
201
1,364
227
1,423
312
1,510
417
1,637
Cash tax rate

Cash income taxes
nmf
(50)
nmf
(143)
nmf
(43)
nmf
23
nmf
24
nmf
21
22%
22
87
22%
46
164
22%
77
275
22%
129
456
22%
173
614
22%
216
767
22%
265
940
22%
300
1,064
22%
313
1,110
22%
332
1,178
22%
360
1,277
76
79
(5)
(116)
(19)
157
(12)
200
368
161
(35)
11
157
174
(44)
(50)
166
194
(59)
(134)
164
217
(77)
(174)
241
241
(94)
(49)
553
258
(107)
(56)
709
225
(119)
(56)
818
174
(129)
(56)
928
187
(139)
(56)
1,056
197
(147)
(56)
1,104
205
(153)
(56)
1,174
212
(158)
(56)
1,274
13,750
15,025

Operating Margin
plus
less
less
less
2005

(50)
Valuation
Enterprise value
7,740
411
(27)
8,125
Cash
Debt
Preferred
Minority Interest
Value of equity
142
(760)
7,507
Shares outstanding
Value per share
8,432.8
0.89
44
(99)
26
59
166
164
241
553
709
818
928
1,056
1,104
1,174
114
134
177
362
414
426
432
439
410
389
Current Value
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Current ValueSkype
11.5%
$as0.92
a Division
$ 0.96
of Microsoft0.115
$ 1.05
3.5%
Current ValueSkype
12.0%
$as0.85
a Division
$ 0.89
of Microsoft0.12
$ 0.95
3.7%
Current ValueSkype
12.5%
$as0.79
a Division
$ 0.83
of Microsoft0.125
$ 0.87
3.9%
Value 12+ months
8432.8
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Value 12+
11.5%
monthsSkype
$ 0.99
as a$Division
1.04 of
$ Microsoft0.115
1.13
3.5%
Value 12+
12.0%
monthsSkype
$ 0.92
as a$Division
0.96 of
$ Microsoft0.12
1.03
3.7%
Value 12+
12.5%
monthsSkype
$ 0.86
as a$Division
0.90 of
$ Microsoft0.125
0.95
3.9%
4,443
Skype S. r.l.
NasdaqGS:MSFT
Skype owned by MSFT

Good Case
Pretax Cost of Debt
Current WACC
12.0%
3.7%
2.5%
11.2%
Tax Rate 22.0%

Debt to Capital
8.9%
Period
2010
Skype Revenue
Sales Growth
72
2006
2007
2008
2009
2010
0.75
2011E
1.75
2012E
2.75
2013E
3.75
2014E
4.75
2015E
5.75
2016E
6.75
2017E
7.75
2018E
8.75
2019E
9.75
2020E
10.75
2021E
194
169%
382
97%
551
45%
719
30%
860
20%
1,095
27%
1,544
41%
1,945
26%
2,659
37%
3,214
21%
3,884
21%
4,653
20%
5,504
18%
6,375
16%
7,289
14%
8,268
13%
(50)
-69.0%
(143)
-73.9%
(43)
-11.3%
23
4.1%
24
3.3%
21
2.4%
105
9.6%
241
15.6%
391
20.1%
710
26.7%
1,003
31.2%
1,361
35.0%
1,777
38.2%
2,119
38.5%
2,470
38.8%
2,733
37.5%
3,059
37.0%
(50)
(143)
(43)
23
24
21
77
182
93
333
101
492
149
859
181
1,184
188
1,549
240
2,018
302
2,421
404
2,874
605
3,338
841
3,900
Cash tax rate

nmf
(50)
nmf
(143)
nmf
(43)
nmf
23
nmf
24
nmf
21
22.0%
40
220
22.0%
73
260
22.0%
108
384
22.0%
189
670
22.0%
260
923
22.0%
341
1,208
22.0%
444
1,574
22.0%
533
1,889
22.0%
632
2,242
22.0%
734
2,604
22.0%
858
3,042
76
79
(5)
(116)
(19)
157
(12)
200
368
161
(35)
11
157
174
(45)
(50)
299
199
(63)
(141)
255
221
(79)
(178)
348
260
(108)
(55)
767
290
(131)
(66)
1,016
278
(158)
(66)
1,262
254
(190)
(66)
1,573
301
(224)
(66)
1,899
348
(260)
(66)
2,265
398
(297)
(66)
2,639
452
(337)
(66)
3,091
33,350
36,441

Operating Margin
plus
less
less
less
2005

(50)
Valuation
Enterprise value
16,434
411
(43)
16,802
Cash
Debt
Preferred
Minority Interest
Value of equity
142
(760)
16,185
Shares outstanding
Value per share
8,432.8
1.92
44
(99)
26
59
299
255
348
767
1,016
1,262
1,573
1,899
2,265
2,639
206
209
255
501
593
658
732
789
840
874
Current Value
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Current ValueSkype
11.5%
$owned
1.99 by$ MSFT0.115
2.08 $ 2.21
3.5%
Current ValueSkype
12.0%
$owned
1.84 by$ MSFT0.12
1.92 $ 2.02
3.7%
Current ValueSkype
12.5%
$owned
1.71 by$ MSFT0.125
1.78 $ 1.86
3.9%
Value 12+ months
8432.8
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Value 12+
11.5%
monthsSkype
$ 2.17
owned
$ 2.27
by MSFT0.115
$ 2.42
3.5%
Value 12+
12.0%
monthsSkype
$ 2.02
owned
$ 2.10
by MSFT0.12
$ 2.21
3.7%
Value 12+
12.5%
monthsSkype
$ 1.88
owned
$ 1.95
by MSFT0.125
$ 2.04
3.9%
10,777
Skype S. r.l.
NasdaqGS:MSFT
Skype owned by MSFT

Best Case
Pretax Cost of Debt
Current WACC
12.0%
3.7%
2.5%
11.2%
Tax Rate 22.0%

Debt to Capital
8.9%
Period
2010
Skype Revenue
Sales Growth
72
2006
2007
2008
2009
2010
0.75
2011E
1.75
2012E
2.75
2013E
3.75
2014E
4.75
2015E
5.75
2016E
6.75
2017E
7.75
2018E
8.75
2019E
9.75
2020E
10.75
2021E
17,357
24%
194
169%
382
97%
551
45%
719
30%
860
20%
1,106
29%
1,637
48%
2,172
33%
3,121
44%
4,002
28%
5,262
32%
6,887
31%
8,893 11,259 14,045

29%
27%
25%
(50)
-69.0%
(143)
-73.9%
(43)
-11.3%
23
4.1%
24
3.3%
21
2.4%
118
10.7%
295
18.0%
516
23.7%
978
31.3%
1,446
36.1%
2,105
40.0%
2,975
43.2%
3,646
41.0%
4,532
40.3%
5,478
39.0%
6,682
38.5%
(50)
(143)
(43)
23
24
21
147
265
168
463
171
686
229
1,207
271
1,717
273
2,378
339
3,314
416
4,062
607
5,139
946
6,424
1,342
8,024
Cash tax rate

nmf
(50)
nmf
(143)
nmf
(43)
nmf
23
nmf
24
nmf
21
22.0%
58
353
22.0%
102
361
22.0%
151
535
22.0%
266
942
22.0%
378
1,339
22.0%
523
1,855
22.0%
729
2,585
22.0%
894
3,168
22.0%
1,130
4,008
22.0%
1,413
5,011
22.0%
1,765
6,259
76
79
(5)
(116)
(19)
157
(12)
200
368
161
(35)
11
157
175
(45)
(50)
433
204
(67)
(148)
350
233
(88)
(196)
483
285
(127)
(57)
1,042
333
(163)
(74)
1,436
354
(214)
(74)
1,920
376
(281)
(74)
2,607
486
(362)
(74)
3,218
615
(459)
(74)
4,091
768
(572)
(74)
5,133

Operating Margin
plus
less
less
less
2005

(50)
Valuation
Enterprise value
31,635
411
(55)
31,991
Cash
Debt
Preferred
Minority Interest
Value of equity
142
(760)
31,373
Shares outstanding
Value per share
8,432.8
3.72
433
350
483
1,042
1,436
1,920
2,607
3,218
4,091
5,133
949
(707)
(74)
6,427
69,341
75,768
298
287
354
681
838
1,001
1,213
1,337
1,518
1,700
22,407
44
(99)
26
59
Current Value
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Current ValueSkype
11.5%
$owned
3.86 by$ MSFT0.115
4.04 $ 4.26
3.5%
Current ValueSkype
12.0%
$owned
3.58 by$ MSFT0.12
3.72 $ 3.90
3.7%
Current ValueSkype
12.5%
$owned
3.32 by$ MSFT0.125
3.44 $ 3.59
3.9%
Value 12+ months
8432.8
Terminal Growth
Equity
2.0%
2.5%
3.0% Tax shield
Value 12+
11.5%
monthsSkype
$ 4.25
owned
$ 4.44
by MSFT0.115
$ 4.68
3.5%
Value 12+
12.0%
monthsSkype
$ 3.94
owned
$ 4.10
by MSFT0.12
$ 4.30
3.7%
Value 12+
12.5%
monthsSkype
$ 3.67
owned
$ 3.81
by MSFT0.125
$ 3.97
3.9%
Skype S. r.l.
Base Case Key Driver Assumptions
Stephen Castellano

Skype Standalone
Skype owned by MSFT
17.0%
12.0%
Skype Standalone
Skype owned by MSFT
7.0%
3.7%
Pretax Cost of Debt
Weighted Average Cost of Capital

Skype Standalone
Skype owned by MSFT
16.0%
11.2%
Skype Standalone
Skype owned by MSFT
2.5%
2.5%
Terminal Growth Rate
Probability of Bankruptcy
Skype Standalone
Skype owned by MSFT
30.0%
1.0%
Skype S. r.l.
Stephen Castellano
Global Population Growth

Skype Standalone
Skype owned by MSFT
2010
1.14%
1.14%
2011E
1.28%
1.28%
2012E
1.00%
1.00%
2013E
1.00%
1.00%
2014E
1.00%
1.00%
2015E
1.00%
1.00%
2016E
0.94%
0.94%
2017E
0.94%
0.94%
2018E
0.94%
0.94%
2019E
0.94%
0.94%
2020E
0.94%
0.94%
2021E
0.94%
0.94%
Skype Standalone
Skype owned by MSFT
2010
6,830
6,830
2011E
6,918
6,918
2012E
6,987
6,987
2013E
7,056
7,056
2014E
7,126
7,126
2015E
7,197
7,197
2016E
7,265
7,265
2017E
7,332
7,332
2018E
7,401
7,401
2019E
7,470
7,470
2020E
7,540
7,540
2021E
7,611
7,611
2010
22%
22%
2011E
25%
25%
2012E
29%
29%
2013E
32%
32%
2014E
35%
35%
2015E
37%
37%
2016E
38%
38%
2017E
39%
39%
2018E
40%
40%
2019E
41%
41%
2020E
42%
42%
2021E
43%
43%
2010
1,495
1,495
2011E
1,749
1,749
2012E
2,004
2,004
2013E
2,264
2,264
2014E
2,500
2,500
2015E
2,662
2,662
2016E
2,760
2,760
2017E
2,859
2,859
2018E
2,960
2,960
2019E
3,062
3,062
2020E
3,166
3,166
2021E
3,272
3,272
Global Population
BB subscriptions % of global population

Skype Standalone
Skype owned by MSFT
Global Broadband Subscriptions

Skype Standalone
Skype owned by MSFT
Skype S. r.l.
Stephen Castellano

Skype Standalone
Skype owned by MSFT
2010
39.9%
39.9%
2011E
33.9%
30.0%
2012E
27.0%
30.0%
2013E
21.0%
30.0%
2014E
16.0%
17.0%
2015E
11.0%
12.0%
2016E
8.0%
9.0%
2017E
7.0%
8.0%
2018E
6.0%
7.0%
2019E
5.0%
6.0%
2020E
4.5%
5.0%
2021E
4.0%
4.5%
Skype Standalone
Skype owned by MSFT
2010
663
663
2011E
888
862
2012E
1,127
1,120
2013E
1,364
1,457
2014E
1,582
1,704
2015E
1,756
1,909
2016E
1,897
2,081
2017E
2,029
2,247
2018E
2,151
2,404
2019E
2,259
2,549
2020E
2,360
2,676
2021E
2,455
2,796
2010
21.9%
21.9%
2011E
21.6%
21.6%
2012E
21.3%
23.0%
2013E
21.0%
23.0%
2014E
20.5%
23.0%
2015E
20.0%
23.0%
2016E
19.7%
23.0%
2017E
19.4%
23.0%
2018E
19.1%
23.0%
2019E
18.8%
23.0%
2020E
18.5%
23.0%
2021E
18.2%
23.0%
2010
145
145
2011E
192
186
2012E
240
258
2013E
286
335
2014E
324
392
2015E
351
439
2016E
374
479
2017E
394
517
2018E
411
553
2019E
425
586
2020E
437
615
2021E
447
643
2010
6.1%
6.1%
2011E
5.5%
6.0%
2012E
5.5%
6.1%
2013E
5.8%
6.4%
2014E
6.5%
7.1%
2015E
7.0%
7.6%
2016E
7.5%
8.1%
2017E
8.0%
8.6%
2018E
8.5%
9.1%
2019E
8.9%
9.5%
2020E
9.3%
9.9%
2021E
9.7%
10.3%
2010
8.8
8.8
2011E
10.5
11.2
2012E
13.2
15.7
2013E
16.6
21.4
2014E
21.1
27.8
2015E
24.6
33.4
2016E
28.0
38.8
2017E
31.5
44.4
2018E
34.9
50.3
2019E
37.8
55.7
2020E
40.6
60.9
2021E
43.3
66.2
Registered Skype Users
Connected Skype Users, Avg per Month, % of Registered Users

Skype Standalone
Skype owned by MSFT
Connected Skype Users, Avg per Month

Skype Standalone
Skype owned by MSFT
Avg Monthly Skype-Paying Users as % of Registered Users

Skype Standalone
Skype owned by MSFT
Paying Skype Users, Avg per Month

Skype Standalone
Skype owned by MSFT
Skype S. r.l.
Stephen Castellano
Billing Minutes, Annual Growth per User

Skype Standalone
Skype owned by MSFT
Billing Minutes per User per Year

Skype Standalone
Skype owned by MSFT
Revenue per billing minute annual growth

Base Case
Base Case
Skype Standalone
Skype owned by MSFT
Revenue per Billing Minute

Base Case
Base Case
Skype Standalone
Skype owned by MSFT
2010
-0.8%
-0.8%
2011E
-0.7%
-0.7%
2012E
1.5%
1.5%
2013E
2.0%
2.0%
2014E
2.0%
2.0%
2015E
2.0%
2.0%
2016E
2.3%
2.3%
2017E
2.3%
2.3%
2018E
2.3%
2.3%
2019E
2.3%
2.3%
2020E
2.3%
2.3%
2021E
2.3%
2.3%
2010
1,455
1,455
2011E
1,445
1,445
2012E
1,467
1,467
2013E
1,496
1,496
2014E
1,526
1,526
2015E
1,556
1,556
2016E
1,591
1,591
2017E
1,627
1,627
2018E
1,664
1,664
2019E
1,701
1,701
2020E
1,740
1,740
2021E
1,779
1,779
2010
0.0%
0.0%
2011E
0.0%
0.0%
2012E
-6.0%
-6.0%
2013E
-7.0%
-7.0%
2014E
-7.0%
-7.0%
2015E
-7.0%
-7.0%
2016E
-7.0%
-7.0%
2017E
-7.0%
-7.0%
2018E
-7.0%
-7.0%
2019E
-7.0%
-7.0%
2020E
-7.0%
-7.0%
2021E
-7.0%
-7.0%
2010
0.067
0.067
2011E
0.067
0.067
2012E
0.063
0.063
2013E
0.059
0.059
2014E
0.055
0.055
2015E
0.051
0.051
2016E
0.047
0.047
2017E
0.044
0.044
2018E
0.041
0.041
2019E
0.038
0.038
2020E
0.035
0.035
2021E
0.033
0.033
Skype S. r.l.
Stephen Castellano
Gross Margin
Base Case
Base Case
Skype Standalone
Skype owned by MSFT
2010
51.7%
51.7%
2011E
53.0%
53.0%
2012E
55.0%
54.0%
2013E
57.0%
55.0%
2014E
59.0%
56.0%
2015E
60.0%
57.0%
2016E
60.0%
58.0%
2017E
60.0%
59.0%
2018E
60.0%
60.0%
2019E
60.0%
60.0%
2020E
60.0%
60.0%
2021E
60.0%
60.0%
Skype Standalone
Skype owned by MSFT
2010
15.3%
15.3%
2011E
15.0%
15.0%
2012E
15.0%
15.0%
2013E
15.0%
15.0%
2014E
14.0%
14.0%
2015E
13.0%
13.0%
2016E
12.5%
12.5%
2017E
12.5%
12.5%
2018E
12.0%
12.0%
2019E
12.5%
12.5%
2020E
13.0%
13.0%
2021E
13.3%
13.3%
Skype Standalone
Skype owned by MSFT
2010
8.4%
8.4%
2011E
8.0%
8.0%
2012E
8.0%
8.0%
2013E
8.0%
8.0%
2014E
7.0%
7.0%
2015E
6.5%
6.5%
2016E
6.3%
6.3%
2017E
6.3%
6.3%
2018E
6.5%
6.5%
2019E
6.8%
6.8%
2020E
7.5%
7.5%
2021E
7.8%
7.8%
2010
11.1%
11.1%
2011E
11.0%
11.0%
2012E
10.0%
10.0%
2013E
9.0%
9.0%
2014E
8.0%
8.0%
2015E
7.0%
7.0%
2016E
7.0%
7.0%
2017E
7.0%
7.0%
2018E
7.5%
7.5%
2019E
7.5%
7.5%
2020E
7.5%
7.5%
2021E
7.5%
7.5%
2010
114
114
2011E
114
114
2012E
114
114
2013E
114
114
2014E
114
114
2015E
114
114
2016E
66
66
2017E
-
2018E
-
2019E
-
2020E
-
2021E
-
Sales & Marketing

Base Case
Base Case
Product Development
Base Case
Base Case

Base Case
Base Case
Skype Standalone
Skype owned by MSFT

Base Case
Base Case
Skype Standalone
Skype owned by MSFT
Skype S. r.l.
Stephen Castellano

Base Case
Base Case
2010
0.0%
6.9%
2011E
0.0%
10.0%
2012E
0.0%
7.0%
2013E
0.0%
-10.0%
2014E
0.0%
10.0%
2015E
0.0%
7.0%
2016E
0.0%
-10.0%
2017E
0.0%
10.0%
2018E
0.0%
7.0%
2019E
0.0%
-10.0%
2020E
0.0%
10.0%
2021E
0.0%
7.0%
Skype Standalone
Skype owned by MSFT
2010
0.0%
0.0%
2011E
0.0%
0.0%
2012E
0.0%
0.0%
2013E
0.0%
0.1%
2014E
0.0%
0.1%
2015E
0.0%
0.1%
2016E
0.0%
0.2%
2017E
0.0%
0.2%
2018E
0.0%
0.2%
2019E
0.0%
0.3%
2020E
0.0%
0.4%
2021E
0.0%
0.5%
Skype Standalone
Skype owned by MSFT
2010
-
2011E
9
2012E
18
2013E
33
2014E
73
2015E
97
2016E
110
2017E
151
2018E
201
2019E
227
2020E
312
2021E
417
Skype Standalone
Skype owned by MSFT

Base Case
Base Case
Base Case
Base Case
Skype S. r.l.
Stephen Castellano
Cash tax rate

Base Case
Base Case
Skype Standalone
Skype owned by MSFT
2010
0.0%
0.0%
2011E
22.0%
22.0%
2012E
22.0%
22.0%
2013E
22.0%
22.0%
2014E
22.0%
22.0%
2015E
22.0%
22.0%
2016E
22.0%
22.0%
2017E
22.0%
22.0%
2018E
22.0%
22.0%
2019E
22.0%
22.0%
2020E
22.0%
22.0%
2021E
22.0%
22.0%
Skype S. r.l.
Key Driver Assumptions
Stephen Castellano
Skype Standalone
Skype Standalone
Unlevered CostBest
of Equity
Case
Skype Standalone
Unlevered CostGood
of Equity
Case
Skype Standalone
Unlevered Cost
Base
of Equity
Case
Skype Standalone
Unlevered CostBad
of Equity
Case
Skype Standalone
Unlevered CostWorst
of Equity
Case
Increments
17.0%
17.0%
17.0%
17.0%
17.0%
0.0%
Skype Standalone
Skype Standalone
Terminal growth
Best rate
Case
Skype Standalone
Terminal growth
Goodrate
Case
Skype Standalone
Terminal growth
Base Case
rate
Skype Standalone
Terminal growth
Bad Case
rate
Skype Standalone
Terminal growth
Worst
rate
Case
Increments
2.5%
2.5%
2.5%
2.5%
2.5%
0.00%
Skype Standalone
Skype Standalone
Probability ofBest
Bankruptcy
Case
24.0%
Skype Standalone
Probability ofGood
Bankruptcy
Case
27.0%
Skype Standalone
ProbabilityBase
of Bankruptcy
Case
30.0%
Skype Standalone
Probability ofBad
Bankruptcy
Case
33.0%
Skype Standalone
Probability ofWorst
Bankruptcy
Case
36.0%
Increments -3.00%
Skype owned by MSFT

Skype ownedUnlevered
by MSFTCostBest
of Equity
Case
by MSFTCostGood
of Equity
Case
Skype owned
Unlevered
by MSFTCost
Base
of Equity
Case
by MSFTCostBad
of Equity
Case
by MSFTCostWorst
of Equity
Case
Increments
12.0%
12.0%
12.0%
12.0%
12.0%
0.0%
Skype owned by MSFT

Skype owned
Terminal
by MSFT
growth
Best rate
Case
Skype owned
Terminal
by MSFT
growth
Goodrate
Case
Skype owned
Terminal
by MSFT
growth
Base Case
rate
Skype owned
Terminal
by MSFT
growth
Bad Case
rate
Skype owned
Terminal
by MSFT
growth
Worst
rate
Case
Increments
2.5%
2.5%
2.5%
2.5%
2.5%
0.00%
Skype owned by MSFT

Skype owned
Probability
by MSFTofBest
Bankruptcy
Case
0.5%
Skype owned
Probability
by MSFTofGood
Bankruptcy
Case
0.8%
Skype owned
Probability
by MSFT
Base
of Bankruptcy
Case
1.0%
Skype owned
Probability
by MSFTofBad
Bankruptcy
Case
1.3%
Skype owned
Probability
by MSFTofWorst
Bankruptcy
Case
1.5%
Increments
-0.25%
Pretax Cost of Debt
Probability of Bankruptcy
Weighted Average Cost of Capital
Skype Standalone
Skype Standalone
Pretax Cost of Best
Debt Case
Skype Standalone
Pretax Cost of Good
Debt Case
Skype Standalone
Pretax Cost ofBase
DebtCase
Skype Standalone
Pretax Cost of Bad
DebtCase
Skype Standalone
Pretax Cost of Worst
Debt Case
Increments
7.0%
7.0%
7.0%
7.0%
7.0%
0.0%
Skype Standalone
Skype Standalone
Pretax Cost Best
of Debt
Case
Skype Standalone
Pretax Cost Good
of Debt
Case
Skype Standalone
Pretax CostBase
of Debt
Case
Skype Standalone
Pretax Cost Bad
of Debt
Case
Skype Standalone
Pretax Cost Worst
of DebtCase
Increments
16.0%
16.0%
16.0%
16.0%
16.0%
0.0%
Skype owned by MSFT

Skype ownedPretax
by MSFT
Cost of Best
Debt Case
Skype ownedPretax
by MSFT
Cost of Good
Debt Case
Skype owned
Pretax
by MSFT
Cost ofBase
DebtCase
Skype ownedPretax
by MSFT
Cost of Bad
DebtCase
Skype ownedPretax
by MSFT
Cost of Worst
Debt Case
Increments
3.7%
3.7%
3.7%
3.7%
3.7%
0.0%
Skype owned by MSFT

Skype owned
Pretax
by MSFT
Cost Best
of Debt
Case
Skype owned
Pretax
by MSFT
Cost Good
of Debt
Case
Skype owned
Pretax
by MSFT
CostBase
of Debt
Case
Skype owned
Pretax
by MSFT
Cost Bad
of Debt
Case
Skype owned
Pretax
by MSFT
Cost Worst
of DebtCase
Increments
11.2%
11.2%
11.2%
11.2%
11.2%
0.0%
Skype S. r.l.
Stephen Castellano
Skype Standalone
Global
pop annual growth
Global pop annual growth

Skype Standalone
Skype Standalone
Global pop annual
Bestgrowth
Case
Skype Standalone
Global pop annual
Good
growth
Case
Skype Standalone
Global pop annual
Base growth
Case
Skype Standalone
Global pop annual
Bad growth
Case
Skype Standalone
Global pop annual
Worst
growth
Case
Increments
Skype owned by MSFT
Skype ownedGlobal
by MSFT
pop annual
Bestgrowth
Case
Skype ownedGlobal
by MSFT
pop annual
Good
growth
Case
Skype owned
Global
by MSFT
pop annual
Base growth
Case
Skype ownedGlobal
by MSFT
pop annual
Bad growth
Case
Skype ownedGlobal
by MSFT
pop annual
Worst
growth
Case
Increments
2010
1.14%
2010
1.14%
2011E
1.78%
1.53%
1.28%
1.03%
0.78%
0.25%
2012E
1.50%
1.25%
1.00%
0.75%
0.50%
0.25%
2013E
1.50%
1.25%
1.00%
0.75%
0.50%
0.25%
2014E
1.50%
1.25%
1.00%
0.75%
0.50%
0.25%
2015E
1.50%
1.25%
1.00%
0.75%
0.50%
0.25%
2016E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2017E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2018E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2019E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2020E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2021E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2011E
1.78%
1.53%
1.28%
1.03%
0.78%
0.25%
2012E
1.50%
1.25%
1.00%
0.75%
0.50%
0.25%
2013E
1.50%
1.25%
1.00%
0.75%
0.50%
0.25%
2014E
1.50%
1.25%
1.00%
0.75%
0.50%
0.25%
2015E
1.50%
1.25%
1.00%
0.75%
0.50%
0.25%
2016E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2017E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2018E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2019E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2020E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2021E
1.44%
1.19%
0.94%
0.69%
0.44%
0.25%
2011E
6,952
6,935
6,918
6,901
6,884
2012E
7,056
7,021
6,987
6,952
6,918
2013E
7,161
7,109
7,056
7,004
6,952
2014E
7,268
7,197
7,126
7,056
6,986
2015E
7,377
7,287
7,197
7,109
7,021
2016E
7,483
7,373
7,265
7,157
7,052
2017E
7,590
7,460
7,332
7,206
7,082
2018E
7,699
7,549
7,401
7,256
7,113
2019E
7,810
7,638
7,470
7,305
7,144
2020E
7,922
7,729
7,540
7,356
7,175
2021E
8,036
7,820
7,611
7,406
7,206
2011E
6,952
6,935
6,918
6,901
6,884
2012E
7,056
7,021
6,987
6,952
6,918
2013E
7,161
7,109
7,056
7,004
6,952
2014E
7,268
7,197
7,126
7,056
6,986
2015E
7,377
7,287
7,197
7,109
7,021
2016E
7,483
7,373
7,265
7,157
7,052
2017E
7,590
7,460
7,332
7,206
7,082
2018E
7,699
7,549
7,401
7,256
7,113
2019E
7,810
7,638
7,470
7,305
7,144
2020E
7,922
7,729
7,540
7,356
7,175
2021E
8,036
7,820
7,611
7,406
7,206
Global Population
Skype Standalone
Skype Standalone
Global Population
Best Case
Skype Standalone
Global Population
Good Case
Skype Standalone
Global Population
Base Case
Skype Standalone
Global Population
Bad Case
Skype Standalone
Global Population
Worst Case
Skype owned by MSFT

Skype ownedGlobal
by MSFT
Population
Best Case
Skype ownedGlobal
by MSFT
Population
Good Case
Skype owned
Global
by MSFT
Population
Base Case
Skype ownedGlobal
by MSFT
Population
Bad Case
Skype ownedGlobal
by MSFT
Population
Worst Case
2010
6,830
2010
6,830
Skype S. r.l.
Stephen Castellano
BB subscriptions % of global population

Skype Standalone
2010
Skype Standalone
BB subscriptions
Best
%Case
of global population
Skype Standalone
BB subscriptions
Good
% of
Case
global population
Skype Standalone
BB subscriptions
Base
% of
Case
global population 21.9%
Skype Standalone
BB subscriptions
Bad%Case
Skype Standalone
BB subscriptions
Worst
% ofCase
global population
Increments
2011E
25.49%
25.39%
25.3%
25.19%
25.09%
0.10%
2012E
28.89%
28.79%
28.7%
28.59%
28.49%
0.10%
2013E
32.29%
32.19%
32.1%
31.99%
31.89%
0.10%
2014E
35.29%
35.19%
35.1%
34.99%
34.89%
0.10%
2015E
37.19%
37.09%
37.0%
36.89%
36.79%
0.10%
2016E
38.19%
38.09%
38.0%
37.89%
37.79%
0.10%
2017E
39.19%
39.09%
39.0%
38.89%
38.79%
0.10%
2018E
40.19%
40.09%
40.0%
39.89%
39.79%
0.10%
2019E
41.19%
41.09%
41.0%
40.89%
40.79%
0.10%
2020E
42.19%
42.09%
42.0%
41.89%
41.79%
0.10%
2021E
43.19%
43.09%
43.0%
42.89%
42.79%
0.10%
Skype owned by MSFT

2010
Skype ownedBB
bysubscriptions
MSFT
Best
%Case
Skype ownedBB
bysubscriptions
MSFT
Good
% of
Case
global population
Skype owned
BBby
subscriptions
MSFT Base
% of
Case
global population 21.9%
Skype ownedBB
bysubscriptions
MSFT
Bad%Case
Skype ownedBB
bysubscriptions
MSFT
Worst
% ofCase
global population
Increments
2011E
25.49%
25.39%
25.3%
25.19%
25.09%
0.10%
2012E
28.89%
28.79%
28.7%
28.59%
28.49%
0.10%
2013E
32.29%
32.19%
32.1%
31.99%
31.89%
0.10%
2014E
35.29%
35.19%
35.1%
34.99%
34.89%
0.10%
2015E
37.19%
37.09%
37.0%
36.89%
36.79%
0.10%
2016E
38.19%
38.09%
38.0%
37.89%
37.79%
0.10%
2017E
39.19%
39.09%
39.0%
38.89%
38.79%
0.10%
2018E
40.19%
40.09%
40.0%
39.89%
39.79%
0.10%
2019E
41.19%
41.09%
41.0%
40.89%
40.79%
0.10%
2020E
42.19%
42.09%
42.0%
41.89%
41.79%
0.10%
2021E
43.19%
43.09%
43.0%
42.89%
42.79%
0.10%
2011E
1,772
1,761
1,749
1,738
1,727
2012E
2,038
2,021
2,004
1,987
1,971
2013E
2,312
2,288
2,264
2,240
2,217
2014E
2,565
2,533
2,500
2,469
2,437
2015E
2,743
2,702
2,662
2,622
2,583
2016E
2,858
2,808
2,760
2,712
2,665
2017E
2,974
2,916
2,859
2,802
2,747
2018E
3,094
3,026
2,960
2,894
2,830
2019E
3,217
3,138
3,062
2,987
2,914
2020E
3,342
3,253
3,166
3,081
2,998
2021E
3,470
3,370
3,272
3,176
3,083
2011E
1,772
1,761
1,749
1,738
1,727
2012E
2,038
2,021
2,004
1,987
1,971
2013E
2,312
2,288
2,264
2,240
2,217
2014E
2,565
2,533
2,500
2,469
2,437
2015E
2,743
2,702
2,662
2,622
2,583
2016E
2,858
2,808
2,760
2,712
2,665
2017E
2,974
2,916
2,859
2,802
2,747
2018E
3,094
3,026
2,960
2,894
2,830
2019E
3,217
3,138
3,062
2,987
2,914
2020E
3,342
3,253
3,166
3,081
2,998
2021E
3,470
3,370
3,272
3,176
3,083
Global Broadband Subscriptions

Skype Standalone
Skype Standalone
Global Broadband
BestSubscriptions
Case
Skype Standalone
Global Broadband
Good
Subscriptions
Case
Skype Standalone
Global Broadband
Base Subscriptions
Case
Skype Standalone
Global Broadband
BadSubscriptions
Case
Skype Standalone
Global Broadband
Worst
Subscriptions
Case
Skype owned by MSFT

Skype ownedGlobal
by MSFT
Broadband
BestSubscriptions
Case
Skype ownedGlobal
by MSFT
Broadband
Good
Subscriptions
Case
Skype owned
Global
by MSFT
Broadband
Base Subscriptions
Case
Skype ownedGlobal
by MSFT
Broadband
BadSubscriptions
Case
Skype ownedGlobal
by MSFT
Broadband
Worst
Subscriptions
Case
2010
1,495
2010
1,495
Skype S. r.l.
Stephen Castellano

Skype Standalone
2010
Skype Standalone
Registered Skype
BestUsers,
Case Annual Growth
Skype Standalone
Registered Skype
Good
Users,
CaseAnnual Growth
Skype Standalone
Registered Skype
Base
Users,
CaseAnnual Growth39.9%
Skype Standalone
Registered Skype
BadUsers,
Case Annual Growth
Skype Standalone
Registered Skype
Worst
Users,
CaseAnnual Growth
Increments
2011E
35.9%
34.9%
33.9%
32.9%
31.9%
1.00%
2012E
31.0%
29.0%
27.0%
25.0%
23.0%
2.00%
2013E
25.0%
23.0%
21.0%
19.0%
17.0%
2.00%
2014E
20.0%
18.0%
16.0%
14.0%
12.0%
2.00%
2015E
15.0%
13.0%
11.0%
9.0%
7.0%
2.00%
2016E
12.0%
10.0%
8.0%
6.0%
4.0%
2.00%
2017E
11.0%
9.0%
7.0%
5.0%
3.0%
2.00%
2018E
10.0%
8.0%
6.0%
4.0%
2.0%
2.00%
2019E
9.0%
7.0%
5.0%
3.0%
1.0%
2.00%
2020E
8.5%
6.5%
4.5%
2.5%
0.5%
2.00%
2021E
8.0%
6.0%
4.0%
2.0%
0.0%
2.00%
Skype owned by MSFT

2010
Skype ownedRegistered
by MSFT Skype
BestUsers,
Case Annual Growth
by MSFT Skype
Good
Users,
CaseAnnual Growth
Skype owned
Registered
by MSFT
Skype
Base
Users,
CaseAnnual Growth39.9%
by MSFT Skype
BadUsers,
Case Annual Growth
by MSFT Skype
Worst
Users,
CaseAnnual Growth
Increments
2011E
32.0%
31.0%
30.0%
29.0%
28.0%
1.00%
2012E
34.0%
32.0%
30.0%
28.0%
26.0%
2.00%
2013E
34.0%
32.0%
30.0%
28.0%
26.0%
2.00%
2014E
21.0%
19.0%
17.0%
15.0%
13.0%
2.00%
2015E
16.0%
14.0%
12.0%
10.0%
8.0%
2.00%
2016E
13.0%
11.0%
9.0%
7.0%
5.0%
2.00%
2017E
12.0%
10.0%
8.0%
6.0%
4.0%
2.00%
2018E
2019E
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0% $
0.04
3.0%
2.0%
2.00%
2.00%
2020E
9.0%
7.0%
5.0%
3.0%
1.0%
2.00%
2021E
8.5%
6.5%
4.5%
2.5%
0.5%
2.00%
2011E
901
894
888
881
874
2012E
1,180
1,154
1,127
1,101
1,075
2013E
1,475
1,419
1,364
1,310
1,258
2014E
1,770
1,674
1,582
1,494
1,409
2015E
2,036
1,892
1,756
1,628
1,508
2016E
2,280
2,081
1,897
1,726
1,568
2017E
2,531
2,268
2,029
1,812
1,615
2018E
2,784
2,450
2,151
1,885
1,648
2019E
3,034
2,621
2,259
1,941
1,664
2020E
3,292
2,792
2,360
1,990
1,672
2021E
3,556
2,959
2,455
2,030
1,672
2011E
875
869
862
855
849
2012E
1,173
1,146
1,120
1,095
1,069
2013E
1,571
1,513
1,457
1,401
1,347
2014E
1,901
1,801
1,704
1,611
1,522
2015E
2,206
2,053
1,909
1,773
1,644
2016E
2,492
2,279
2,081
1,897
1,726
2017E
2,791
2,507
2,247
2,010
1,796
2018E
3,099
2,732
2,404
2,111
1,849
2019E
3,408
2,951
2,549
2,195
1,886
2020E
3,715
3,157
2,676
2,261
1,905
2021E
4,031
3,363
2,796
2,318
1,915
Registered Skype Users

Skype Standalone
Skype Standalone
Registered Skype
BestUsers
Case
Skype Standalone
Registered Skype
Good
Users
Case
Skype Standalone
Registered Skype
BaseUsers
Case
Skype Standalone
Registered Skype
BadUsers
Case
Skype Standalone
Registered Skype
Worst
Users
Case
2010
Skype owned by MSFT

by MSFT Skype
BestUsers
Case
by MSFT Skype
Good
Users
Case
Skype owned
Registered
by MSFTSkype
BaseUsers
Case
by MSFT Skype
BadUsers
Case
by MSFT Skype
Worst
Users
Case
2010
663
663
Skype S. r.l.
Stephen Castellano
% of Skype registered users

Skype Standalone
Skype Standalone
% of Skype registered
Best Case
users
Skype Standalone
Good Case
users
Skype Standalone
Base Case
users
Skype Standalone
Bad Case
users
Skype Standalone
Worst Case
users
Increments
2011E
21.6%
21.6%
21.6%
21.6%
21.6%
0.00%
2012E
21.6%
21.4%
21.3%
21.2%
21.1%
0.13%
2013E
21.5%
21.3%
21.0%
20.8%
20.5%
0.25%
2014E
21.3%
20.9%
20.5%
20.1%
19.8%
0.38%
2015E
21.0%
20.5%
20.0%
19.5%
19.0%
0.50%
2016E
21.2%
20.5%
19.7%
19.0%
18.2%
0.75%
2017E
21.4%
20.4%
19.4%
18.4%
17.4%
1.00%
2018E
21.6%
20.4%
19.1%
17.9%
16.6%
1.25%
2019E
21.8%
20.3%
18.8%
17.3%
15.8%
1.50%
2020E
22.0%
20.3%
18.5%
16.8%
15.0%
1.75%
2021E
22.2%
20.2%
18.2%
16.2%
14.2%
2.00%
2011E
21.6%
21.6%
21.6%
21.6%
21.6%
0.00%
2012E
23.3%
23.1%
23.0%
22.9%
22.8%
0.13%
2013E
23.5%
23.3%
23.0%
22.8%
22.5%
0.25%
2014E
23.8%
23.4%
23.0%
22.6%
22.3%
0.38%
2015E
24.0%
23.5%
23.0%
22.5%
22.0%
0.50%
2016E
24.5%
23.8%
23.0%
22.3%
21.5%
0.75%
2017E
25.0%
24.0%
23.0%
22.0%
21.0%
1.00%
2018E
25.5%
24.3%
23.0%
21.8%
20.5%
1.25%
2019E
26.0%
24.5%
23.0%
21.5%
20.0%
1.50%
2020E
26.5%
24.8%
23.0%
21.3%
19.5%
1.75%
2021E
27.0%
25.0%
23.0%
21.0%
19.0%
2.00%
Skype Standalone
2010
Skype Standalone
Connected Skype
BestUsers,
Case Avg per Month
Skype Standalone
Connected Skype
Good
Users,
CaseAvg per Month
Skype Standalone
Connected Skype
BaseUsers,
Case Avg per Month
145
Skype Standalone
Connected Skype
BadUsers,
Case Avg per Month
Skype Standalone
Connected Skype
Worst
Users,
Case
Avg per Month
2011E
194
193
192
190
189
2012E
254
247
240
233
226
2013E
317
302
286
272
258
2014E
376
349
324
301
278
2015E
427
388
351
318
286
2016E
483
426
374
327
285
2017E
542
463
394
333
281
2018E
601
499
411
336
273
2019E
661
532
425
336
263
2020E
724
565
437
333
251
2021E
789
598
447
329
237
Skype owned by MSFT

2010
Skype ownedConnected
by MSFT Skype
BestUsers,
Case Avg per Month
by MSFT Skype
Good
Users,
CaseAvg per Month
Skype owned
Connected
by MSFTSkype
BaseUsers,
Case Avg per Month
145
by MSFT Skype
BadUsers,
Case Avg per Month
by MSFT Skype
Worst
Users,
Case
Avg per Month
2011E
189
188
186
185
183
2012E
273
265
258
250
243
2013E
369
352
335
319
303
2014E
452
421
392
365
339
2015E
529
482
439
399
362
2016E
611
541
479
422
371
2017E
698
602
517
442
377
2018E
790
663
553
459
379
2019E
886
723
586
472
377
2020E
985
781
615
481
372
2021E
1,088
841
643
487
364
Skype owned by MSFT

Skype owned%by
of MSFT
Skype registered
Best Case
users
Skype owned%by
of MSFT
Skype registered
Good Case
users
Skype owned
% of
bySkype
MSFTregistered
Base Case
users
Skype owned%by
of MSFT
Skype registered
Bad Case
users
Skype owned%by
of MSFT
Skype registered
Worst Case
users
Increments
2010
21.9%
2010
21.9%
Connected Skype Users, Avg per Month
Skype S. r.l.
Stephen Castellano
% of Skype connected users

Skype Standalone
Skype Standalone
% of Skype connected
Best Case
users
Skype Standalone
Good Case
users
Skype Standalone
Base Case
users
Skype Standalone
Bad Case
users
Skype Standalone
Worst Case
users
Increments
2010
2011E
5.5%
5.5%
5.5%
5.5%
5.5%
0.00%
2012E
5.8%
5.6%
5.5%
5.4%
5.3%
0.13%
2013E
6.3%
6.1%
5.8%
5.6%
5.3%
0.25%
2014E
7.3%
6.9%
6.5%
6.1%
5.8%
0.38%
2015E
8.0%
7.5%
7.0%
6.5%
6.0%
0.50%
2016E
9.0%
8.3%
7.5%
6.8%
6.0%
0.75%
2017E
10.0%
9.0%
8.0%
7.0%
6.0%
1.00%
2018E
11.0%
9.8%
8.5%
7.3%
6.0%
1.25%
2019E
11.9%
10.4%
8.9%
7.4%
5.9%
1.50%
2020E
12.8%
11.1%
9.3%
7.6%
5.8%
1.75%
2021E
13.7%
11.7%
9.7%
7.7%
5.7%
2.00%
Skype owned by MSFT

Skype owned%by
of MSFT
Skype connected
Best Case
users
Skype owned%by
of MSFT
Skype connected
Good Case
users
Skype owned
% of
bySkype
MSFTconnected
Base Case
users
Skype owned%by
of MSFT
Skype connected
Bad Case
users
Skype owned%by
of MSFT
Skype connected
Worst Case
users
Increments
2010
6.1%
2011E
6.0%
6.0%
6.0%
6.0%
6.0%
0.00%
2012E
6.4%
6.2%
6.1%
6.0%
5.9%
0.13%
2013E
6.6%
6.3%
6.4%
5.8%
5.6%
0.25%
2014E
7.9%
7.5%
7.1%
6.7%
6.4%
0.38%
2015E
8.6%
8.1%
7.6%
7.1%
6.6%
0.50%
2016E
9.6%
8.9%
8.1%
7.4%
6.6%
0.75%
2017E
10.6%
9.6%
8.6%
7.6%
6.6%
1.00%
2018E
11.6%
10.4%
9.1%
7.9%
6.6%
1.25%
2019E
12.5%
11.0%
9.5%
8.0%
6.5%
1.50%
2020E
13.4%
11.7%
9.9%
8.2%
6.4%
1.75%
2021E
14.3%
12.3%
10.3%
8.3%
6.3%
2.00%
Skype Standalone
2010
Skype Standalone
Paying Skype Users,
Best Case
Avg per Month
Skype Standalone
Paying Skype Users,
Good Case
Avg per Month
Skype Standalone
Paying SkypeBase
Users,
Case
Avg per Month 8.8
Skype Standalone
Paying Skype Users,
Bad Case
Avg per Month
Skype Standalone
Paying Skype Users,
Worst Case
Avg per Month
2011E
10.7
10.6
10.5
10.5
10.4
2012E
14.6
13.9
13.2
12.5
11.9
2013E
20.0
18.2
16.6
15.1
13.7
2014E
27.3
24.0
21.1
18.4
16.0
2015E
34.2
29.1
24.6
20.6
17.2
2016E
43.5
35.1
28.0
22.1
17.1
2017E
54.2
41.6
31.5
23.3
16.9
2018E
66.1
48.6
34.9
24.4
16.4
2019E
78.7
55.3
37.8
24.9
15.5
2020E
92.7
62.5
40.6
25.2
14.5
2021E
108.1
69.9
43.3
25.3
13.5
Skype owned by MSFT

2010
Skype ownedPaying
by MSFT
Skype Users,
Best Case
Avg per Month
Skype ownedPaying
by MSFT
Skype Users,
Good Case
Avg per Month
Skype owned
Paying
by MSFT
SkypeBase
Users,
Case
Avg per Month 8.8
Skype ownedPaying
by MSFT
Skype Users,
Bad Case
Avg per Month
Skype ownedPaying
by MSFT
Skype Users,
Worst Case
Avg per Month
2011E
11.3
11.3
11.2
11.1
11.0
2012E
17.3
16.5
15.7
15.0
14.2
2013E
24.3
22.2
21.4
18.6
16.9
2014E
35.4
31.5
27.8
24.5
21.5
2015E
45.5
39.1
33.4
28.3
23.9
2016E
58.6
47.9
38.8
31.0
24.5
2017E
74.0
57.8
44.4
33.6
24.9
2018E
91.7
68.6
50.3
36.0
25.0
2019E
110.8
79.5
55.7
37.8
24.5
2020E
131.9
91.0
60.9
39.2
23.8
2021E
155.6
103.4
66.2
40.4
22.9
6.1%
Paying Skype Users, Avg per Month
Skype S. r.l.
Stephen Castellano
Annual billing minute growth per user

Skype Standalone
Skype Standalone
Annual billing Best
minute
Case
growth per user
Skype Standalone
Annual billing Good
minuteCase
growth per user
Skype Standalone
Annual billing Base
minuteCase
growth per user
Skype Standalone
Annual billing Bad
minute
Case
growth per user
Skype Standalone
Annual billing Worst
minuteCase
growth per user
Increments
Skype owned by MSFT
Skype ownedAnnual
by MSFT
billing Best
minute
Case
growth per user
Skype ownedAnnual
by MSFT
billing Good
minuteCase
growth per user
Skype owned
Annual
by MSFT
billing Base
minuteCase
growth per user
Skype ownedAnnual
by MSFT
billing Bad
minute
Case
growth per user
Skype ownedAnnual
by MSFT
billing Worst
minuteCase
growth per user
Increments
2010
-0.8%
2010
-0.8%
2011E
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
0.00%
2012E
2.0%
1.8%
1.5%
1.3%
1.0%
0.25%
2013E
3.0%
2.5%
2.0%
1.5%
1.0%
0.50%
2014E
3.5%
2.8%
2.0%
1.3%
0.5%
0.75%
2015E
4.0%
3.0%
2.0%
1.0%
0.0%
1.00%
2016E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2017E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2018E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2019E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2020E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2021E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2011E
-0.7%
-0.7%
-0.7%
-0.7%
-0.7%
0.00%
2012E
2.0%
1.8%
1.5%
1.3%
1.0%
0.25%
2013E
0.2%
-0.3%
2.0%
-1.3%
-1.8%
0.50%
2014E
3.5%
2.8%
2.0%
1.3%
0.5%
0.75%
2015E
4.0%
3.0%
2.0%
1.0%
0.0%
1.00%
2016E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2017E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2018E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2019E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2020E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2021E
4.8%
3.5%
2.3%
1.0%
-0.3%
1.25%
2011E
1,445
1,445
1,445
1,445
1,445
2012E
1,474
1,470
1,467
1,463
1,459
2013E
1,518
1,507
1,496
1,485
1,474
2014E
1,571
1,548
1,526
1,504
1,481
2015E
1,634
1,595
1,556
1,519
1,481
2016E
1,712
1,651
1,591
1,534
1,478
2017E
1,793
1,709
1,627
1,549
1,474
2018E
1,878
1,768
1,664
1,565
1,470
2019E
1,967
1,830
1,701
1,580
1,467
2020E
2,061
1,894
1,740
1,596
1,463
2021E
2,159
1,961
1,779
1,612
1,459
2011E
1,445
1,445
1,445
1,445
1,445
2012E
1,474
1,470
1,467
1,463
1,459
2013E
1,477
1,466
1,496
1,445
1,434
2014E
1,529
1,507
1,526
1,463
1,441
2015E
1,590
1,552
1,556
1,477
1,441
2016E
1,666
1,606
1,591
1,492
1,437
2017E
1,745
1,662
1,627
1,507
1,434
2018E
1,828
1,721
1,664
1,522
1,430
2019E
1,915
1,781
1,701
1,537
1,427
2020E
2,006
1,843
1,740
1,553
1,423
2021E
2,101
1,908
1,779
1,568
1,419
Billing Minutes per User per Year

Skype Standalone
Skype Standalone
Billing MinutesBest
per User
Caseper Year
Skype Standalone
Billing MinutesGood
per User
Case
per Year
Skype Standalone
Billing Minutes
Base
per Case
User per Year
Skype Standalone
Billing MinutesBad
per User
Caseper Year
Skype Standalone
Billing MinutesWorst
per User
Case
per Year
Skype owned by MSFT

Skype ownedBilling
by MSFT
MinutesBest
per User
Caseper Year
Skype ownedBilling
by MSFT
MinutesGood
per User
Case
per Year
Skype owned
Billing
by MSFT
Minutes
Base
per Case
User per Year
Skype ownedBilling
by MSFT
MinutesBad
per User
Caseper Year
Skype ownedBilling
by MSFT
MinutesWorst
per User
Case
per Year
2010
1,455
2010
1,455
Skype S. r.l.
Stephen Castellano
Revenue per billing minute annual growth

Skype Standalone
2010
Skype Standalone
Revenue per billing
Best minute
Case annual growth
Skype Standalone
Revenue per billing
Goodminute
Case annual growth
Skype Standalone
Revenue per billing
Baseminute
Case annual growth0.0%
Skype Standalone
Revenue per billing
Bad Case
minute annual growth
Skype Standalone
Revenue per billing
Worstminute
Case annual growth
Increments
2011E
0.5%
0.3%
0.0%
-0.3%
-0.5%
0.25%
2012E
-5.0%
-5.5%
-6.0%
-6.5%
-7.0%
0.50%
2013E
-5.5%
-6.3%
-7.0%
-7.8%
-8.5%
0.75%
2014E
-5.0%
-6.0%
-7.0%
-8.0%
-9.0%
1.00%
2015E
-4.0%
-5.5%
-7.0%
-8.5%
-10.0%
1.50%
2016E
-2.5%
-4.8%
-7.0%
-9.3%
-11.5%
2.25%
2017E
-1.0%
-4.0%
-7.0%
-10.0%
-13.0%
3.00%
2018E
-0.5%
-3.8%
-7.0%
-10.3%
-13.5%
3.25%
2019E
0.0%
-3.5%
-7.0%
-10.5%
-14.0%
3.50%
2020E
0.0%
-3.5%
-7.0%
-10.5%
-14.0%
3.50%
2021E
0.0%
-3.5%
-7.0%
-10.5%
-14.0%
3.50%
Skype owned by MSFT

2010
Skype ownedRevenue
by MSFT
per billing
Best minute
Case annual growth
Skype ownedRevenue
by MSFT
per billing
Goodminute
Case annual growth
Skype owned
Revenue
by MSFT
per billing
Baseminute
Case annual growth0.0%
Skype ownedRevenue
by MSFT
per billing
Bad Case
minute annual growth
Skype ownedRevenue
by MSFT
per billing
Worstminute
Case annual growth
Increments
2011E
0.5%
0.3%
0.0%
-0.3%
-0.5%
0.25%
2012E
-5.0%
-5.5%
-6.0%
-6.5%
-7.0%
0.50%
2013E
-5.5%
-6.3%
-7.0%
-7.8%
-8.5%
0.75%
2014E
-5.0%
-6.0%
-7.0%
-8.0%
-9.0%
1.00%
2015E
-4.0%
-5.5%
-7.0%
-8.5%
-10.0%
1.50%
2016E
-2.5%
-4.8%
-7.0%
-9.3%
-11.5%
2.25%
2017E
-1.0%
-4.0%
-7.0%
-10.0%
-13.0%
3.00%
2018E
-0.5%
-3.8%
-7.0%
-10.3%
-13.5%
3.25%
2019E
0.0%
-3.5%
-7.0%
-10.5%
-14.0%
3.50%
2020E
0.0%
-3.5%
-7.0%
-10.5%
-14.0%
3.50%
2021E
0.0%
-3.5%
-7.0%
-10.5%
-14.0%
3.50%
2011E
0.068
0.067
0.067
0.067
0.067
2012E
0.064
0.064
0.063
0.063
0.062
2013E
0.061
0.060
0.059
0.058
0.057
2014E
0.058
0.056
0.055
0.053
0.052
2015E
0.055
0.053
0.051
0.049
0.047
2016E
0.054
0.050
0.047
0.044
0.041
2017E
0.053
0.048
0.044
0.040
0.036
2018E
0.053
0.047
0.041
0.036
0.031
2019E
0.053
0.045
0.038
0.032
0.027
2020E
0.053
0.043
0.035
0.029
0.023
2021E
0.053
0.042
0.033
0.026
0.020
2011E
0.068
0.067
0.067
0.067
0.067
2012E
0.064
0.064
0.063
0.063
0.062
2013E
0.061
0.060
0.059
0.058
0.057
2014E
0.058
0.056
0.055
0.053
0.052
2015E
0.055
0.053
0.051
0.049
0.047
2016E
0.054
0.050
0.047
0.044
0.041
2017E
0.053
0.048
0.044
0.040
0.036
2018E
0.053
0.047
0.041
0.036
0.031
2019E
0.053
0.045
0.038
0.032
0.027
2020E
0.053
0.043
0.035
0.029
0.023
2021E
0.053
0.042
0.033
0.026
0.020
Revenue per Billing Minute

Skype Standalone
Skype Standalone
Revenue per Billing
Best Case
Minute
Skype Standalone
Revenue per Billing
GoodMinute
Case
Skype Standalone
Revenue per Billing
Base Case
Minute
Skype Standalone
Revenue per Billing
Bad Case
Minute
Skype Standalone
Revenue per Billing
WorstMinute
Case
Skype owned by MSFT

Skype ownedRevenue
by MSFT
per Billing
Best Case
Minute
Skype ownedRevenue
by MSFT
per Billing
GoodMinute
Case
Skype owned
Revenue
by MSFT
per Billing
Base Case
Minute
Skype ownedRevenue
by MSFT
per Billing
Bad Case
Minute
Skype ownedRevenue
by MSFT
per Billing
WorstMinute
Case
2010
0.067
2010
0.067
Skype S. r.l.
Stephen Castellano
Gross Margin
Skype Standalone
Skype Standalone
Gross Margin Best Case
Skype Standalone
Gross Margin Good Case
Skype Standalone
Gross Margin Base Case
Skype Standalone
Gross Margin Bad Case
Skype Standalone
Gross Margin Worst Case
Increments
Skype owned by MSFT
Skype ownedGross
by MSFT
Margin Best Case
Skype ownedGross
by MSFT
Margin Good Case
Skype owned
Gross
by MSFT
Margin Base Case
Skype ownedGross
by MSFT
Margin Bad Case
Skype ownedGross
by MSFT
Margin Worst Case
Increments
2010
51.7%
2010
51.7%
0.64
2011E
53.5%
53.3%
53.0%
52.8%
52.5%
0.25%
0.64
2011E
53.5%
53.3%
53.0%
52.8%
52.5%
0.25%
0.64
2012E
56.0%
55.5%
55.0%
54.5%
54.0%
0.50%
0.64
2012E
55.0%
54.5%
54.0%
53.5%
53.0%
0.50%
0.64
2013E
58.5%
57.8%
57.0%
56.3%
55.5%
0.75%
0.64
2013E
56.5%
55.8%
55.0%
54.3%
53.5%
0.75%
0.64
2014E
61.0%
60.0%
59.0%
58.0%
57.0%
1.00%
0.64
2014E
58.0%
57.0%
56.0%
55.0%
54.0%
1.00%
0.64
2015E
62.5%
61.3%
60.0%
58.8%
57.5%
1.25%
0.64
2015E
59.5%
58.3%
57.0%
55.8%
54.5%
1.25%
0.64
2016E
63.0%
61.5%
60.0%
58.5%
57.0%
1.50%
0.64
2016E
61.0%
59.5%
58.0%
56.5%
55.0%
1.50%
0.64
2017E
64.0%
62.0%
60.0%
58.0%
56.0%
2.00%
0.64
2017E
63.0%
61.0%
59.0%
57.0%
55.0%
2.00%
0.64
2018E
64.0%
63.0%
60.0%
57.0%
54.0%
3.00%
0.64
2018E
64.0%
63.0%
60.0%
57.0%
54.0%
3.00%
0.64
2019E
64.0%
64.0%
60.0%
56.0%
52.0%
4.00%
0.64
2019E
64.0%
64.0%
60.0%
56.0%
52.0%
4.00%
0.64
2020E
64.0%
64.0%
60.0%
55.0%
50.0%
5.00%
0.64
2020E
64.0%
64.0%
60.0%
55.0%
50.0%
5.00%
0.64
2021E
64.0%
64.0%
60.0%
54.0%
48.0%
6.00%
0.64
2021E
64.0%
64.0%
60.0%
54.0%
48.0%
6.00%
2011E
14.5%
14.8%
15.0%
15.3%
15.5%
-0.25%
2012E
14.0%
14.5%
15.0%
15.5%
16.0%
-0.50%
2013E
13.5%
14.3%
15.0%
15.8%
16.5%
-0.75%
2014E
12.0%
13.0%
14.0%
15.0%
16.0%
-1.00%
2015E
11.0%
12.0%
13.0%
14.0%
15.0%
-1.00%
2016E
10.5%
11.5%
12.5%
13.5%
14.5%
-1.00%
2017E
10.5%
11.5%
12.5%
13.5%
14.5%
-1.00%
2018E
11.0%
11.5%
12.0%
12.5%
13.0%
-0.50%
2019E
11.5%
12.0%
12.5%
13.0%
13.5%
-0.50%
2020E
12.0%
12.5%
13.0%
13.5%
14.0%
-0.50%
2021E
12.3%
12.8%
13.3%
13.8%
14.3%
-0.50%
2011E
14.5%
14.8%
15.0%
15.3%
15.5%
-0.25%
2012E
14.0%
14.5%
15.0%
15.5%
16.0%
-0.50%
2013E
13.5%
14.3%
15.0%
15.8%
16.5%
-0.75%
2014E
12.0%
13.0%
14.0%
15.0%
16.0%
-1.00%
2015E
11.0%
12.0%
13.0%
14.0%
15.0%
-1.00%
2016E
10.5%
11.5%
12.5%
13.5%
14.5%
-1.00%
2017E
10.5%
11.5%
12.5%
13.5%
14.5%
-1.00%
2018E
11.0%
11.5%
12.0%
12.5%
13.0%
-0.50%
2019E
11.5%
12.0%
12.5%
13.0%
13.5%
-0.50%
2020E
12.0%
12.5%
13.0%
13.5%
14.0%
-0.50%
2021E
12.3%
12.8%
13.3%
13.8%
14.3%
-0.50%
Sales & Marketing

Skype Standalone
Skype Standalone
Sales & Marketing
Best Case
Skype Standalone
Sales & Marketing
Good Case
Skype Standalone
Sales & Marketing
Base Case
Skype Standalone
Sales & Marketing
Bad Case
Skype Standalone
Sales & Marketing
Worst Case
Increments
Skype owned by MSFT
Skype owned bySales
MSFT
& Marketing
Best Case
Skype owned bySales
MSFT
& Marketing
Good Case
Skype owned by
Sales
MSFT
& Marketing
Base Case
Skype owned bySales
MSFT
& Marketing
Bad Case
Skype owned bySales
MSFT
& Marketing
Worst Case
Increments
2010
15.3%
2010
15.3%
Skype S. r.l.
Stephen Castellano
Product Development
Skype Standalone
Skype Standalone
Product Development
Best Case
Skype Standalone
Product Development
Good Case
Skype Standalone
Product Development
Base Case
Skype Standalone
Product Development
Bad Case
Skype Standalone
Product Development
Worst Case
Increments
2010
Skype owned by MSFT

Skype owned byProduct
MSFT Development
Best Case
MSFT Development
Good Case
Skype owned by
Product
MSFT
Development
Base Case
MSFT Development
Bad Case
MSFT Development
Worst Case
Increments
2010
8.4%
8.4%
2011E
7.5%
7.8%
8.0%
8.3%
8.5%
-0.25%
2012E
7.0%
7.5%
8.0%
8.5%
9.0%
-0.50%
2013E
6.5%
7.3%
8.0%
8.8%
9.5%
-0.75%
2014E
5.0%
6.0%
7.0%
8.0%
9.0%
-1.00%
2015E
4.5%
5.5%
6.5%
7.5%
8.5%
-1.00%
2016E
4.3%
5.3%
6.3%
7.3%
8.3%
-1.00%
2017E
4.3%
5.3%
6.3%
7.3%
8.3%
-1.00%
2018E
5.5%
6.0%
6.5%
7.0%
7.5%
-0.50%
2019E
5.8%
6.3%
6.8%
7.3%
7.8%
-0.50%
2020E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2021E
6.8%
7.3%
7.8%
8.3%
8.8%
-0.50%
2011E
7.5%
7.8%
8.0%
8.3%
8.5%
-0.25%
2012E
7.0%
7.5%
8.0%
8.5%
9.0%
-0.50%
2013E
6.5%
7.3%
8.0%
8.8%
9.5%
-0.75%
2014E
5.0%
6.0%
7.0%
8.0%
9.0%
-1.00%
2015E
4.5%
5.5%
6.5%
7.5%
8.5%
-1.00%
2016E
4.3%
5.3%
6.3%
7.3%
8.3%
-1.00%
2017E
4.3%
5.3%
6.3%
7.3%
8.3%
-1.00%
2018E
5.5%
6.0%
6.5%
7.0%
7.5%
-0.50%
2019E
5.8%
6.3%
6.8%
7.3%
7.8%
-0.50%
2020E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2021E
6.8%
7.3%
7.8%
8.3%
8.8%
-0.50%
2011E
10.5%
10.8%
11.0%
11.3%
11.5%
-0.25%
2012E
9.0%
9.5%
10.0%
10.5%
11.0%
-0.50%
2013E
7.5%
8.3%
9.0%
9.8%
10.5%
-0.75%
2014E
6.0%
7.0%
8.0%
9.0%
10.0%
-1.00%
2015E
5.0%
6.0%
7.0%
8.0%
9.0%
-1.00%
2016E
5.0%
6.0%
7.0%
8.0%
9.0%
-1.00%
2017E
5.0%
6.0%
7.0%
8.0%
9.0%
-1.00%
2018E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2019E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2020E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2021E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2011E
10.5%
10.8%
11.0%
11.3%
11.5%
-0.25%
2012E
9.0%
9.5%
10.0%
10.5%
11.0%
-0.50%
2013E
7.5%
8.3%
9.0%
9.8%
10.5%
-0.75%
2014E
6.0%
7.0%
8.0%
9.0%
10.0%
-1.00%
2015E
5.0%
6.0%
7.0%
8.0%
9.0%
-1.00%
2016E
5.0%
6.0%
7.0%
8.0%
9.0%
-1.00%
2017E
5.0%
6.0%
7.0%
8.0%
9.0%
-1.00%
2018E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2019E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2020E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%
2021E
6.5%
7.0%
7.5%
8.0%
8.5%
-0.50%

Skype Standalone
Skype Standalone
Best Case
Skype Standalone
Good Case
Skype Standalone
Base Case
Skype Standalone
Bad Case
Skype Standalone
Worst Case
Increments
Skype owned by MSFT
Skype owned byGeneral
MSFT & Administrative
Best Case
Good Case
Skype owned by
General
MSFT& Administrative
Base Case
Bad Case
Worst Case
Increments
2010
11.1%
2010
11.1%
Skype S. r.l.
Stephen Castellano

Skype Standalone
Skype Standalone
AmortizationBest
of Intangible
Case
Assets
Skype Standalone
AmortizationGood
of Intangible
Case Assets
Skype Standalone
AmortizationBase
of Intangible
Case Assets
Skype Standalone
AmortizationBad
of Intangible
Case
Assets
Skype Standalone
AmortizationWorst
of Intangible
Case Assets
Increments
2010
Skype owned by MSFT

Skype owned byAmortization
MSFT
Best
of Intangible
Case
Assets
MSFT
Good
of Intangible
Case Assets
Skype owned by
Amortization
MSFT Base
of Intangible
Case Assets
MSFT
Bad
of Intangible
Case
Assets
MSFT
Worst
of Intangible
Case Assets
Increments
2010
114
114
2011E
114
114
114
114
114
-
2012E
114
114
114
114
114
-
2013E
114
114
114
114
114
-
2014E
114
114
114
114
114
-
2015E
114
114
114
114
114
-
2016E
66
66
66
66
66
-
2017E
-
2018E
-
2019E
-
2020E
-
2021E
-
2011E
114
114
114
114
114
-
2012E
114
114
114
114
114
-
2013E
114
114
114
114
114
-
2014E
114
114
114
114
114
-
2015E
114
114
114
114
114
-
2016E
66
66
66
66
66
-
2017E
-
2018E
-
2019E
-
2020E
-
2021E
-

Skype Standalone
Skype Standalone MSFT Base
BestSales
Case Growth
GoodSales
CaseGrowth
Skype Standalone
MSFT Base
BaseSales
CaseGrowth
Bad Sales
Case Growth
Worst
Sales
Case
Growth
Increments
2010
2011E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2012E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2013E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2014E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2015E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2016E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2017E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2018E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2019E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2020E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2021E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
Skype owned by MSFT

Skype owned by MSFT
MSFT Base
BestSales
Case Growth
Skype owned by MSFT
MSFT Base
GoodSales
CaseGrowth
Skype owned by MSFT
MSFT Base
BaseSales
CaseGrowth
Skype owned by MSFT
MSFT Base
Bad Sales
Case Growth
Skype owned by MSFT
MSFT Base
Worst
Sales
Case
Growth
Increments
2010
2011E
10.5%
10.3%
10.0%
9.8%
9.5%
0.25%
2012E
8.0%
7.5%
7.0%
6.5%
6.0%
0.50%
2013E
-8.5%
-9.3%
-10.0%
-10.8%
-11.5%
0.75%
2014E
12.0%
11.0%
10.0%
9.0%
8.0%
1.00%
2015E
9.0%
8.0%
7.0%
6.0%
5.0%
1.00%
2016E
-8.0%
-9.0%
-10.0%
-11.0%
-12.0%
1.00%
2017E
12.0%
11.0%
10.0%
9.0%
8.0%
1.00%
2018E
9.0%
8.0%
7.0%
6.0%
5.0%
1.00%
2019E
-8.0%
-9.0%
-10.0%
-11.0%
-12.0%
1.00%
2020E
12.0%
11.0%
10.0%
9.0%
8.0%
1.00%
2021E
9.0%
8.0%
7.0%
6.0%
5.0%
1.00%
6.9%
Skype S. r.l.
Stephen Castellano
MSFT Base Revenue

Skype Standalone
BestRevenue
Case
GoodRevenue
Case
Skype Standalone
MSFT Base
BaseRevenue
Case
Bad Revenue
Case
Worst
Revenue
Case
2010
2011E
-
2012E
-
2013E
-
2014E
-
2015E
-
2016E
-
2017E
-
2018E
-
2019E
-
2020E
-
2021E
-
Skype owned by MSFT

Skype owned by MSFT
MSFT Base
BestRevenue
Case
Skype owned by MSFT
MSFT Base
GoodRevenue
Case
Skype owned by MSFT Base
BaseRevenue
Case
Skype owned by MSFT
MSFT Base
Bad Revenue
Case
Skype owned by MSFT
MSFT Base
Worst
Revenue
Case
2010
2011E
69,045
68,889
68,732
68,576
68,420
2012E
74,568
74,055
73,544
73,034
72,525
2013E
68,230
67,205
66,189
65,183
64,185
2014E
76,418
74,598
72,808
71,049
69,320
2015E
83,295
80,566
77,905
75,312
72,786
2016E
76,632
73,315
70,114
67,028
64,051
2017E
85,827
81,379
77,126
73,060
69,175
2018E
93,552
87,890
82,525
77,444
72,634
2019E
86,068
79,980
74,272
68,925
63,918
2020E
96,396
88,777
81,699
75,128
69,031
2021E
105,072
95,879
87,418
79,636
72,483
Skype Standalone
2010
Skype Standalone
% MSFT BaseBest
SalesCase
"saved" by Skype
Skype Standalone
% MSFT BaseGood
SalesCase
"saved" by Skype
Skype Standalone
% MSFT BaseBase
SalesCase
"saved" by Skype 0.0%
Skype Standalone
% MSFT BaseBad
Sales
Case
"saved" by Skype
Skype Standalone
% MSFT BaseWorst
Sales Case
"saved" by Skype
Increments
2011E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2012E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2013E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2014E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2015E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2016E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2017E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2018E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2019E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2020E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
2021E
0.0%
0.0%
0.0%
0.0%
0.0%
0.00%
Skype owned by MSFT

2010
Skype owned%by
MSFT
MSFT
BaseBest
SalesCase
"saved" by Skype
Skype owned%by
MSFT
MSFT
BaseGood
SalesCase
"saved" by Skype
Skype owned
% MSFT
by MSFT
BaseBase
SalesCase
"saved" by Skype 0.0%
Skype owned%by
MSFT
MSFT
BaseBad
Sales
Case
"saved" by Skype
Skype owned%by
MSFT
MSFT
BaseWorst
Sales Case
"saved" by Skype
Increments
2011E
0.2%
0.1%
0.0%
-0.1%
-0.2%
0.10%
2012E
0.2%
0.1%
0.0%
-0.1%
-0.2%
0.10%
2013E
0.3%
0.2%
0.1%
-0.1%
-0.2%
0.10%
2014E
0.3%
0.2%
0.1%
0.0%
-0.1%
0.10%
2015E
0.3%
0.2%
0.1%
0.0%
-0.1%
0.10%
2016E
0.4%
0.3%
0.2%
0.1%
0.0%
0.10%
2017E
0.4%
0.3%
0.2%
0.1%
0.0%
0.10%
2018E
0.4%
0.3%
0.2%
0.1%
0.0%
0.10%
2019E
0.7%
0.5%
0.3%
0.1%
-0.1%
0.20%
2020E
1.0%
0.7%
0.4%
0.1%
-0.2%
0.30%
2021E
1.3%
0.9%
0.5%
0.1%
-0.3%
0.40%
62,484
Skype S. r.l.
Stephen Castellano
Skype Standalone
Skype Standalone
Best Case
Skype Standalone
Good Case
Skype Standalone
Skype-MSFT Base
Synergies
Case
Skype Standalone
Bad Case
Skype Standalone
Worst Case
2010
2011E
-
2012E
-
2013E
-
2014E
-
2015E
-
2016E
-
2017E
-
2018E
-
2019E
-
2020E
-
2021E
-
Skype owned by MSFT

Skype ownedSkype-MSFT
by MSFT Synergies
Best Case
by MSFT Synergies
Good Case
Skype owned
Skype-MSFT
by MSFT Base
Synergies
Case
by MSFT Synergies
Bad Case
by MSFT Synergies
Worst Case
2010
2011E
147
77
9
(60)
(128)
2012E
168
93
18
(55)
(127)
2013E
171
101
33
(33)
(96)
2014E
229
149
73
(69)
2015E
271
181
97
19
(55)
2016E
273
188
110
38
(28)
2017E
339
240
151
70
(3)
2018E
416
302
201
112
32
2019E
607
404
227
72
(61)
2020E
946
605
312
61
(151)
2021E
1,342
841
417
61
(234)
2010
2011E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2012E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2013E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2014E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2015E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2016E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2017E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2018E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2019E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2020E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2021E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2010
2011E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2012E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2013E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2014E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2015E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2016E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2017E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2018E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2019E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2020E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
2021E
22.0%
22.0%
22.0%
22.0%
22.0%
0.00%
Cash tax rate

Skype Standalone
Skype Standalone
Cash tax rate Best Case
Skype Standalone
Cash tax rate Good Case
Skype Standalone
Cash tax rate Base Case
Skype Standalone
Cash tax rate Bad Case
Skype Standalone
Cash tax rate Worst Case
Increments
Skype owned by MSFT
Skype ownedCash
by MSFT
tax rate Best Case
Skype ownedCash
by MSFT
tax rate Good Case
Skype owned
Cash
by tax
MSFT
rate Base Case
Skype ownedCash
by MSFT
tax rate Bad Case
Skype ownedCash
by MSFT
tax rate Worst Case
Increments
nmf
nmf
Operating Profit
Worst Case
Skype Standalone
+ Addressable Market Impact
+ MSFT Product Stickiness Impact
Skype owned by MSFT
Valuation Impact
2010
21
21
2011E
2012E
2013E
2014E
2015E
56
12
(128)
(62)
80
37
(127)
(22)
103
68
(96)
23
156
99
(69)
121
182
153
(55)
184
2016E 20119E
197
218
(28)
243
216
285
(3)
294
2018E
187
356
32
310
2019E
2020E
2021E
135
385
(61)
147
93
400
(151)
(3)
64
422
(234)
(128)
+ Capital Structure Impact

Impact to Microsoft Valuation
Operating Profit
Bad Case
Skype Standalone
Skype owned by MSFT
2010
21
21
2011E
2012E
2013E
2014E
68
12
(60)
19
115
37
(55)
92
171
68
(33)
163
268
99
324
2015E
332
153
19
439
2016E 20119E
379
218
38
539
420
285
70
637
2018E
402
356
112
689
2019E
348
385
72
587
2020E
2021E
293
400
61
504
250
422
61
450
Operating Profit
Base Case
2010
21
21
2011E
80
12
9
100
2012E
155
37
18
210
2013E
251
68
33
352
2014E
413
99
73
585
2015E
537
153
97
788
2016E 20119E
655
218
110
983
770
285
151
1,205
2018E
2019E
2020E
2021E
807
356
201
1,364
812
385
227
1,423
799
400
312
1,510
798
422
417
1,637
Operating Profit
Good Case
2010
21
21
2011E
92
12
77
182
2012E
198
37
93
333
2013E
345
68
101
492
2014E
595
99
149
859
2015E
2016E 20119E
2018E
2019E
2020E
2021E
814
153
181
1,184
1,068
218
188
1,549
1,544
356
302
2,421
1,767
385
404
2,874
1,927
400
605
3,338
2,126
422
841
3,900
1,352
285
240
2,018
Operating Profit
Best Case
Debt
16.0%
215
(89)
126
(99)
(26)
80
(45)
901
94
(558)
437
142
142
(760)
(760)
284
94
(558)
(181)
0.03
0.01
(0.07)
(0.02)
11.2%
17
373
285
411
43
(2)
345
782
142
(760)
345
165
0.04
0.02
Unlevered Interest
Firm
Tax
Potential Enterprise
Value Shields Bankruptcy
value
WACC
Value /
MSFT
Share
Cash
Debt
Equity
Value
16.0%
1,449
427
39
1,915
215
(89)
126
(167)
(49)
(5)
(221)
1,496
288
35
1,820
142
142
(760)
(760)
879
288
35
1,202
0.10
0.03
0.00
0.14
11.2%
1,215
3,130
285
411
207
(14)
1,708
3,528
142
(760)
1,708
2,910
0.20
0.35
Value /
MSFT
Share
Unlevered Interest
Firm
Tax
value
WACC
Cash
Debt
Equity
Value
16.0%
2,765
862
1,687
5,314
215
(89)
126
(290)
(91)
(177)
(558)
2,689
683
1,510
4,882
142
142
(760)
(760)
2,072
683
1,510
4,264
0.25
0.08
0.18
0.51
11.2%
2,427
7,740
285
411
531
(27)
3,243
8,125
142
(760)
3,243
7,507
0.38
0.89
Value /
MSFT
Share
Valuation Impact

Skype Standalone
Skype owned by MSFT
Cash
785
209
(639)
356
Valuation Impact

Skype Standalone
Skype owned by MSFT
Value /
MSFT
Share
Equity
Value
Valuation Impact

Skype Standalone
Skype owned by MSFT
Unlevered Interest
Firm
Tax
value
WACC
Unlevered Interest
Firm
Tax
value
WACC
Cash
Debt
Equity
Value
16.0%
5,291
1,927
1,684
8,902
215
(89)
126
(500)
(182)
(159)
(841)
5,006
1,656
1,525
8,187
142
142
(760)
(760)
4,389
1,656
1,525
7,570
0.52
0.20
0.18
0.90
11.2%
7,532
16,434
285
411
798
(43)
8,615
16,802
142
(760)
8,615
16,185
1.02
1.92
Valuation Impact
2010
2011E
21
105
12
147
265
21
2012E
245
37
168
463
2013E
456
68
171
686
2014E
2015E
2016E 20119E
2018E
2019E
2020E
2021E
823
99
229
1,207
1,183
153
271
1,717
1,669
218
273
2,378
2,704
356
416
4,062
3,309
385
607
5,139
3,956
400
946
6,424
4,771
422
1,342
8,024
2,290
285
339
3,314

Unlevered Interest
Firm
Tax
value
WACC
Equity
Value
Value /
MSFT
Share
Cash
Debt
16.0%
10,212
3,612
2,674
16,499
215
(89)
126
(858)
(303)
(225)
(1,386)
9,569
3,220
2,450
15,239
142
142
(760)
(760)
8,952
3,220
2,450
14,622
1.06
0.38
0.29
1.73
11.2%
15,136
31,635
285
411
1,331
(55)
16,752
31,991
142
(760)
16,752
31,373
1.99
3.72
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J. Stephen Castellano founded Ascendere Associates LLC to provide innovative equity

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analysis studies; 3) supply /demand studies; 4) long and short stock idea generation; 5) portfolio feedback; 6) detailed
fundamental financial modeling services; and 7) additional analytical consulting services. Additional information is
available at www.ascenderellc.com.
Mr. Castellano has over 15 years of experience in equity research and related consulting positions. At PaineWebber,
Warburg Dillon Read and Credit Lyonnais Securities he developed fundamental equity valuation models and
conducted in-depth research on the steel and telecom services industries. At Boston Private Value Investors, he
developed quantitative models for stock idea generation and also provided general fundamental equity research
coverage. Steve received a MBA from the F. W. Olin School of Business at Babson College (2005) and a BA from
Oberlin College (1993).
Mr. Castellano's career history is highlighted below:
Ascendere Associates, LLC (2009-Present)
Boston Private Value Investors , Equity Research, Equity Research Analyst (2005-2009)
Pyramid Research, Contract Consultant, Telecom Services (2002-2003)
Credit Lyonnais Securities (USA), Equity Research, Telecom Services, Vice President (2000-2001)
Warburg Dillon Read, Equity Research, Telecom Services, Research Associate (1999-2000)
PaineWebber, Equity Research, Steel and Nonferrous Metals, Research Associate, Editor (1995-1999)

Detailed Scenario Analysis of Microsoft&#39;s Acquisition of Skype

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Detailed Scenario Analysis of Microsoft&#39;s Acquisition of Skype

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Ascendere Associates LLC

Stock Commentary: May 16, 2011

Ascendere Associates LLC

Microsoft Acquisition of Skype

Source: Ascendere Associates estimates

MSFT shares outstanding

Ascendere Associates LLC

Ascendere Associates LLC

Ascendere Associates LLC

Negative Equity Value

Ascendere Associates LLC

CY1 Consensus EPS Est.

Ascendere Associates LLC

$25.49 $0.64 / 2.5%

BPVM Adjusted = (31.8+17.4)/(3.6+2.0)

Next 5yr EPS growth estimate

Next year estimate

Next quarter estimate

Cash & equivalents

EBIT margin (or EBT)

Percent of total possible

Next yr, y/y estimate

Next Q, y/y estimate

Free Cash Flow

Implied by Consensus Average

ROIC (NOPLAT / Operating Capital)

EBIAT Trailing 12 months

Ascendere Associates LLC

Price / Earnings (NTM) vs. Stock Price

Max up to ten years

One year historically implied target range

Source: Capital IQ data and estimates.

Ascendere Associates LLC

12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010

TEV / NTM Total Revenue

TEV / NTM EBITDA

TEV / NTM EBIT

Price / NTM EPS

Ascendere Associates LLC

Skype-reported Adjustments to EBITDA

Ascendere Assumptions for Recurring EBIT

Source: SEC filings and Ascendere Associates assumptions

Ascendere Associates LLC

Skype as a Division of Microsoft

Registered Skype users (millions)

Average monthly Skype connected users (millions)

Average monthly Skype paying users (millions)

Annual revenue per paying user

Billing minutes (billions)

Mobile broadband subscribers

Revenue per minute

Skype as a Division of Microsoft -- Base Case

Sales & Marketing

Skype Reported Operating Profit

Sales & Marketing

Adjusted Operating Profit

Cash tax rate

Depreciation & Amortization

Gross intangible assets

Skype as a Division of Microsoft -- Base Case

Value of interest tax shields

Cost of Potential Bankruptcy

Source: Ascendere Associates LLC

Value 12+ months

Detailed Scenario Analysis of Microsoft's Acquisition of Skype

Detailed Scenario Analysis of Microsoft's Acquisition of Skype