Microsoft May Return to Glory Days with $8.5 Billion Purchase of Skype (MSFT, EBAY, GOOG, AAPL, NOK)

Microsoft Corporation MSFT is widely reported to be close to buying the online telephone service Skype for more than $8 billion. Skype was purchased by eBay Inc. EBAY for $2.6 billion in 2005 but the hoped for benefits of the deal never materialized and eBay Inc. sold a 70% stake in the company to an investor group for $2 billion a year and a half ago. The biggest acquisition that Microsoft made previously was the purchase of online advertising company aQuantive in 2007 for $6 billion and if Microsoft Corporation completes the deal, it would be the software giant's biggest acquisition ever. Microsoft also made a relatively small but important investment of $240 million for a 1.6% stake in social networking site Facebook in 2007. Microsoft has been playing catch-up for years with Google Inc. GOOG in the lucrative internet search business but Microsoft's Bing search engine is still far behind Google in terms of revenue and searches completed. More recently, Microsoft has set its sights on the mobile phone market and is taking on both Google and Apple Inc. AAPL with its Windows Phone operating system. Just last month Microsoft and Nokia Corporation NOK signed a deal that called for Nokia phones to move from their Symbian smartphone platform to Microsoft's Windows Phone platform. Microsoft said at the time that "Nokia will receive payments measured in the billions of dollars." Although most of Skype's nearly 700 million users enjoy the service's free internet phone calls, the company does have millions of customers who are willing to pay for enhanced services. However, despite its popularity, the company has struggled to make a profit, reporting a loss of $7 million on revenue of $860 million last year. Although Microsoft is still a very profitable company and has billions of dollars in cash holdings, most of those profits come from its Microsoft Windows and Microsoft Office businesses and the company has struggled to find profitable growth in its other businesses. Between its deal with Nokia and the possible addition of Skype and its nearly 700 million users, Microsoft would be positioning itself as a major force within the smartphone and internet telephone markets. If Microsoft is able to make these deals work, the company may take some of the wind out of the sails of competitors like Google and Apple and once again become a growth stock that has people talking.