Internet bubble 'set to burst in 1999'

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The Independent Online
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 driving companies to consolidate, the US-based consultancy International Data Corporation said yesterday. Frank Gens, senior vice-president of Internet research at IDC, said: "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," Mr Gens said, but after that the best Internet companies would continue to have high valuations. These would include the likes of, E*Trade Group, Yahoo! and America Online.

Mr Gens thinks heightened competition could lead Yahoo!, a dominant Web "portal" or entry point for consumers, to be acquired by a media company such as Time Warner or CBS. "They could step into the big leagues of media, not just the Internet, but media in general."

Time Warner's 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.

The online broker E*Trade could sell out to a large financial firm such as Citigroup or Wells Fargo. "They're making money, growing fast, they're a category leader and their price to earnings ratio looks cheap on the Internet stock scale," Mr Gens said. He is convinced that E*Trade will either be acquired or acquire a smaller online broker, such as Ameritrade Holding, in 1999.

An E*Trade spokesman 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.

The software group Microsoft might buy a major Web portal, Mr Gens suggested.