Internet Predictions for 2009

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We think this development will help Yahoo shares, on which we have a buy recommendation, outperform the S&P 500 in 2009.

We foresee a flight to quality in Internet advertising and an associated consolidation of online advertising networks. Our strong sell opinion on ValueClick (VCLK) reflects the related challenges we see. Specific to ValueClick, we also have concerns about other offerings from its media units, and its e-commerce-related affiliate marketing and comparison shopping segments.

We have two China-related predictions:

We expect Baidu (BIDU) to do a decent job of weathering multiple issues, related to China’s slowing economy and company-specific legal matters. We have a buy opinion on the ADRs and expect them to outperform the S&P 500 in 2009.

We expect The9 (NCTY) to win a license renewal of Activision Blizzard's (ATVI) World of Warcraft and continue operating the game in China. Although we anticipate that the new deal will be less profitable for The9, we believe this news will be a positive catalyst for the ADRs, on which we have a buy recommendation. We expect the shares to also outperform the S&P 500 in 2009, and note The9 recently had almost $12 per ADS in cash and investments.

We believe eBay will reduce its ownership interest in Skype, possibly completely, by selling the business to a large technology, Internet, or media company. The proceeds will likely be used for buybacks and perhaps a dividend, and contribute to what we expect will be outperformance relative to the S&P 500 in 2009, for these buy-ranked shares.

Notwithstanding what may happen with Skype, we foresee a lack of multi-billion-dollar transactions, but expect a number of sub-billion-dollar deals, as companies look to better focus and raise cash. We would not be surprised to see activity associated with Akamai Technologies, InfoSpace (INSP), Move (MOVE), and RealNetworks (RNWK).

We'll check back in a year or so and let you know how we did with our predictions and what we see for 2010.

Kessler follows technology stocks for S&P Equity Research .