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Robertson Stephens Tech Conference: Cendant Goes to the Net

SAN FRANCISCO -- It's that darn Internet thing again. This time investors are all riled up about




At the

BancAmerica Robertson Stephens

Technology Conference, held at the San Francisco

Ritz Carlton Hotel

, the company said late Tuesday that it expects to generate $1.2 billion in free cash flow in calendar 1998, while capital expenditure will be only $200 million. "The return on invested capital is tremendous," says portfolio manager Chris Bonavico, at San Francisco-based

Transamerica Investment Services

, who is considering expanding his stake in the company. "I don't think 'EPS investors' understand this."

Indeed. From a valuation standpoint, Cendant could churn the gut. The company, which intends to use its massive consumer database to lure customers to the Internet, trades at an eye-popping 628 times trailing 12-month earnings.

Cendant intends to bring its customers onto the Web to enrich its revenue stream. Cendant was formed through a $14 billion pooling-of-interest merger between



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CUC International

. The new company is a big coupon vendor and a franchiser of hotels, rental cars and real estate.

Cendant will push a range of goods over the Internet, including rental cars and airplane tickets. For a membership fee, customers can make a number of purchases.

Cendant stock slipped 3/16 to 37 Tuesday, on heavy volume of 7.8 million shares. Bonavico speculates that some investors are worried about the startup cost of its Internet gambit. They might also be concerned that HFS will continue to purchase the rights to brand names of franchises by issuing stock for pooling-of-interest transactions. On Wednesday, the stock was up 11/16 to 37 11/16.

Other Internet companies have provided instructive models.

, for instance, sells a single product line -- books -- one transaction at a time through its Web site.



, meanwhile, auctions goods over the Internet as they become available; customers of this service are perusing an array of products that might change from one day to the next.

Cendant might learn something from Onsale (who

wowed the crowd here Tuesday). Jerry Kaplan, CEO of Onsale, told investors that two-thirds of his buyers are repeat customers. Moreover, in the fourth quarter, it cost $14 to win the average customer -- who spent $481 in the period.

Kaplan clearly thinks Onsale is the top dog here, even offering a subtle dis of his Cendant. "We don't compete for business," he said as he hustled out of the crowded presentation room. "We are a potential outlet for

Cendant's excess goods."

Of course, Cendant hopes it won't have much excess goods, but that remains to be seen.