The risk section of the filing details the narrow nature of their revenue stream:
Many of our products are free. As a result, we have generated nearly all of our historical revenues from our paid communications services products, which are purchased by a small minority of our users. During the three months ended June 30, 2010, we generated on average net revenues from calls made by approximately 8.1 million paying users to landline or mobile phones. These paying users represented less than 7% of our average connected users during this period. If even a small percentage of our paying users cease paying for our products, this could have a significant impact on our net revenues.
In addition, we have historically derived a substantial portion of our net revenues from a single product—SkypeOut. For the pro forma year ended December 31, 2009 and for the six months ended June 30, 2010, 86% and 87% of our pro forma net revenues and net revenues, respectively, were derived from the use of SkypeOut. Due to this dependence on SkypeOut as our primary source of net revenues, we are subject to an elevated risk of reduced demand for our SkypeOut product.
Our other sources of net revenues, including our Skype for Business products and marketing services and licensing, are currently limited. We may face challenges as we seek to expand our sources of revenue. For example, the current version of our software does not include functionality to allow industry standard-sized advertisements to be delivered to our users via the Skype software client. Furthermore, even if certain versions of the Skype software client were able to deliver advertisements, we may face difficulty in successfully implementing advertising on certain platforms, such as mobile devices. Finally, our users may respond negatively to receiving advertisements through their Skype software client, which could negatively and materially affect user engagement, our Skype brand and our results of operations.The revenue and usage graphs are impressive, but are they sustainable?
Only time will tell. I can neither endorse nor pan Skype as an investment. My concern is that there are many ways to make free phone calls over the Internet, one of which I detailed in a previous article. I believe in the resourcefulness of people to figure out these loopholes.