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To: accountclosed who wrote (14186)	12/30/1998 4:30:00 PM
From: MythMan	Read Replies (1) \| Respond to of 86076

Wednesday December 30, 4:06 pm Eastern Time Web bubble will burst, spur mergers in 1999--firm (adds vice president interview, details) By Simon Hirschfeld NEW YORK, Dec 30 (Reuters) - The era of gravity-defying Internet stock valuations will come to an end in 1999, according to a firm that tracks information technology and its use by consumers. A correction will create winners and losers in the Internet market, intensifying competitive pressure and drive companies to consolidate, International Data Corp. said on Wednesday. ''We're taking a look at history,'' Frank Gens, senior vice president of Internet research at IDC, said when asked why he thought universal exuberance over Web-related stocks could end next year. ''In the birth of the PC business 15 or 20 years ago, people were excited, billionaires would be created, but the number of companies that lived up to the big expectations were measured in handfuls, rather than thousands.'' It would take only a few negative announcements, such as earnings disappointments, to ''let the air out of the balloon,'' Gen said, but after that the best Internet companies will continue to have high valuations. These would include companies such as Amazon.com (Nasdaq:AMZN - news), ETrade Group Inc. (Nasdaq:EGRP - news), Yahoo! Inc. (Nasdaq:YHOO - news) and America Online Inc. (NYSE:AOL - news). Gens thinks heightened competition could lead Yahoo!, a dominant Web portal, to be acquired by media companies such as Time Warner Inc. (NYSE:TWX - news) or CBS Corp. (NYSE:CBS - news). ''Yahoo! could stand still, but they may not intend to. They could step into the big leagues of media, not just the Internet, but media in general,'' he said. Time Warner Chairman Gerald Levin said in July that the company had no interest in buying Internet companies such as Yahoo! and a CBS spokesman would not comment on speculation. Online broker ETrade could sell out to a large financial firm such as Citigroup Inc. (NYSE:C - news) or Wells Fargo & Co. (NYSE:WFC - news). ''They're making money, growing fast, they're a category leader and their price to earnings ratio looks cheap on the Internet stock scale,'' Gens said. Gens is convinced that ETrade will either be acquired or acquire a smaller online broker, such as Ameritrade Holding Corp. (Nasdaq:AMTD - news), in 1999. A spokesman for ETrade said only that the company ''can be a player in this marketplace through the ups and downs of any cycle'', but declined to comment on possible mergers. Software group Microsoft Corp. (Nasdaq:MSFT - news) may buy a major Web portal. ''The Internet services space is an area where Microsoft has not done all that well,'' Gens said. A Microsoft representative declined to comment on the company's plans. If it does, that will add one more to the list of goliaths, including Yahoo! and AOL, whose very existence puts pressure on smaller firms like Lycos Inc. (Nasdaq:LCOS - news), Excite Inc. (Nasdaq:XCIT - news) and Infoseek (Nasdaq:SEEK - news), who Gens thinks will be forced to combine, probably with each other. Internet valuations are partially justified because of the ''explosive'' growth of the market. He sees personal computers appearing in over half of U.S. households in 1999, Internet use jumping to 147 million users and Internet commerce more than doubling to $68 billion. The report is Gens' and IDC's fourth annual set of forecasts for the Internet economy. Last year, among other predictions, Gens said Netscape Communications Corp. (Nasdaq:NSCP - news) would merge, although he admitted he was wrong about the buyer. ''We thought they were a software company rather than a portal and would merge with Oracle,'' he said. Netscape announced a planned merger with AOL in November.