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Fresh on the heels of Skype’s (News - Alert) IPO filing, now people are fanning the flames of a rumor that Cisco is looking into buying Skype.

Cisco CEO John Chambers and his senior management team do not strike me as crazy people, so I can’t see why a move to buy Skype would be contemplated. Cisco (News - Alert) doesn’t need the headaches and the asking price is way too high for what it would get when the smoke cleared.

I know this train of thought is blasphemy to the Skype fan-boy crowd, but a rational and reasonable look at Skype’s fundamentals and track record are necessary – which is what due diligence is all about.

If rumors are to be believed, Skype-ites want $5 billion in 2010; that’s nearly double the $2.75 billion valuation the company got in 2009 when it was sold by eBay (News - Alert) to a private investor group that brought back Skype founders Niklas Zennstrom and Janus Friis.

Do you really think Skype is worth $5 billion in a sloggy economy? I don’t. 

On revenues and profits alone, it’s not a great case. In the first half of 2010, Skype reported revenues of $406 million and net income of $13.2 million. If you want to be kind, we could estimate maybe $1 billion in revenue by the close of 2010, which would give Skype a valuation of five times revenues – but only $30 million to $40 million in net income.  Last year, Skype had sales of $719 million and a loss of around $100 million, so you’re not seeing big hockey-stick growth and definitely not seeing a cash-generating monster like Google (News - Alert). 

Is there value in the customer base? There are around 124 million “active” users – please, can we simply drop this profanity about 560 million registered users already? – but only a bit over 8 million customers are actually paying money.    It’s a lot of customers, but they’re fickle, penny-pinching customers using SkypeOut in a pre-paid fashion and some of them are already jumping ship to dial phone numbers through Gmail and Google Voice at lower cost for local and international calls.

Promoting video calling – estimated to be 40 percent of Skype usage at the beginning of the year – only compounds the revenue problem, since Skype doesn’t make a dime of recurring revenue on a person-to-person video call at this point in time.

 Other sources of revenue? TV manufacturers are paying for the privilege of putting Skype into their latest and greatest HDTV sets and that will probably last as long as it takes Google to get a good Android (News - Alert) port into a couple of manufacturers – Skype is just phone calls, while Android is apps and an app store, so there’s a wider range of things that could be sold. 

Business revenues for Skype? I think we’re on the second or third launch of Skype business services, the first being done two years ago around AstriCon with Skype for Asterisk, Channel partner program, a way for resellers to make money by selling SkypeOut minutes, blah-blah-blah-blah. Now we’re into Skype Connect 1.0, which has been in beta for 1.5 years as Skype for SIP and has over 2,400 active global customers out of those 8 million active users and a new Skype Channel Partner program with “details soon.”  

We come to technology – the final mantra of Skype value. Video is citied as the instant-presto thing that Cisco would love to have, but $5 billion is a steep price for software with a checkered history of intellectual property disputes.

But it is the intangibles which make any rational buyer think twice or three times about acquiring Skype. The company is not headquartered in America, but in Luxembourg – take note of that IPO seekers, because the company clearly states it in its SEC filing. If anything goes south, you’re going overseas to litigate. Current board members Zennstrom and Friis, on the other hand, had no problem coming to the States to sue eBay and Silver Lake in order to win their seats at the Skype table, due in part to the fact that the underlying JoltId software wasn’t somehow a part of Skype’s sale to eBay.

It begs the question as to how long it would take Cisco to perform adequate due diligence to make sure there aren’t any other hidden land mines buried in Skype’s closet.