Morgan's Mary Meeker: 'Buy on weakness'
Street's most influential Net guru says worst is past
By Bambi Francisco, CBS MarketWatch
Last Update: 6:19 PM ET Jun 29, 1999 Internet Daily
Net headlines
NEW YORK (CBS.MW) -- There are Internet analysts. And then there's Mary Meeker. Morgan Stanley's most influential Internet analyst is still a big Web bull and expects nothing less than promising and uplifting news from the Net leaders.
Meeker, dubbed the Queen of the Net and, alternatively, the Goddess of the Net, told CBS.MarketWatch.com Tuesday that she still believes the Internet sell-off has seen its worst days, the same view Meeker gave in mid-June.
Since that call, the Goldman Sachs Internet Index, then at 454.33, has risen 4 percent. Yet America Online (AOL: news, msgs), Mary's top Net pick, which stood at 110 then, ended Tuesday at 106 3/16 and needed a gain of 2 3/8 to get there.
While it appears the group may have stabilized, it's been choppy. AOL even dropped below 100 Monday. So how does Meeker qualify and quantify the risks investors face if they heed her words?
Dog days of summer
The key risk involves enduring a volatile summer, Meeker said, explaining that there's lots of emotion built into the group. "One of the tricky things investing in this highly volatile sector," she said, "is that emotion and momentum matter a lot for the stocks."
But Meeker said she expects good news from Yahoo and AOL when they present their June quarter results in July. "That should put some stability in the market."
Absent the overhang of interest-rate uncertainties, Meeker predicted a solid fourth quarter, especially for commerce companies. The "e-commerce experience" will be "easier, broader and have greater reach, and people will be buying a lot of products online." This year will truly be an "e-commerce year," she said.
But December is a long time from now, at least in "stock-market moments," said Meeker. In the interim, each time the Net leaders fall back, she said, it represents a good opportunity to "buy on weakness."
Meeker has noted from time to time that the risk of missing big winners at lower levels may be greater than the risk of suffering from near-term declines.
That said, what are her Net "blue chips"? Measuring her favorites by market cap and other factors, Meeker ran off her list in descending order. Without hesitation, she chose AOL as her top pick. She likes Yahoo (YHOO: news, msgs), although Morgan is restricted from covering the company officially; EBay (EBAY: news, msgs); and ExciteAtHome (ATHM: news, msgs). Amazon.com (AMZN: news, msgs) and Priceline.com (PCLN: news, msgs) also were noted. And she also likes Microsoft (MSFT: news, msgs) and Intuit (INTU: news, msgs).
Asked whether AOL and ExciteAtHome should strike a deal, Meeker, in an interview with CBS MarketWatch at a luncheon in Manhattan hosted by ExciteAtHome, said "it would be a great thing if it happened. However, the real question is, Will the companies work together two to three years down the road if they could have a meeting of the minds with regard to business structure and synergy?"
Meeker's stamp of approval
Undoubtedly, Meeker has credibility and a following. She's credited with bringing some of the highest-profile Net deals to market, including Priceline.com, Broadcast.com (BCST: news, msgs), Healtheon (HLTH: news, msgs), Marimba (MRBA: news, msgs) and Ariba (ARBA: news, msgs).
And Morgan's deal pipeline is currently full, with AskJeeves Inc. (ASKJ: news, msgs), Chemdex Corp. (CMDX: news, msgs), Tickets.com (TKTS: news, msgs), Women.com Networks (WOMN: news, msgs) and Drugstore.com (DSCM: news, msgs) en route to market.
High praise
"She's the Internet queen," said Infospace Chief Executive Naveen Jain. "Her blessing means a lot to an Internet company because investors understand that Mary is great in picking the companies with sustainable business models." Meeker currently doesn't cover Infospace.
"With Mary, it's about her integrity," said Jay Walker, Priceline's vice chairman and co-founder. "The reason Morgan led our offering was Mary Meeker."
"She's the ultimately credible analyst. She tends to take a very analytical, nonnumerical approach. When you sit there, you don't talk about the financial model; you talk about theory," Walker said. "She's trying to separate the winning ideas, which separates the winning businesses from losing ones."
But, while Meeker may be credible, reputable and undoubtedly deserving of the attention that's been showered on her, her timing calls have drawn criticism.
Volatile market makes timing calls tough
"She's not accurate all the time," said Jain. "But, then again, no one can time the market."
Consider May 26. Meeker said Internet stocks could fall another 20 percent from current levels, but the Goldman index managed to tack on 5.6 percent that day. "This could be a signal that there's a bottom if the selling doesn't follow negative comments," Takeshi Kawamoto of Nomura Asset Management said back in May.
A hedge-fund manager noted that "in order to keep up with these stocks, the analysts have had to become momentum-oriented. Roy Howard of Circle T Partners, a Manhattan-based hedge fund, added. "Because those are the investors that are playing in these stocks, you have to cater to your audience."
On May 11, Meeker raised her rating on America Online (AOL: news, msgs) to "strong buy" from "outperform," citing undue pressure on AOL's shares from "doubters" of the company's "destiny."
Shares of AOL did jump nearly 10 percent that day to 141 and traded as high as 149. AOL stock has steadily declined since. Anyone even buying the stock at 128, the level Meeker made her call at -- would have been sitting on gains for the next 10 days, but not since.
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