Henry Blodgett of merrill Lynch
A Worth article.
Your Attention, Please
By Michael Peltz
When Merrill Lynch's Henry Blodget talks, Internet investors are all ears. But will Silicon Valley ever listen? Henry Blodget, as he himself will admit, has no life.Outside of Merrill Lynch, that is. As captain of the firm's 15-person global Internet research team, Blodget, 33, routinely puts in 14-hour days, juggling the demands of several very different constituencies--the companies he covers, Merrill's institutional and retail investors, and its investment bankers--while making time to actually write reports. Inevitably, his job spills over into the weekend. Analyst Edward McCabe, who followed Blodget to Merrill from CIBC Oppenheimer last spring, puts it simply: "Henry is a workhorse."
Wednesday, February 23, was a typical Blodget marathon. That morning he was at his desk by 6:00, reviewing a report finished late the night before on the proposed megamerger between America Online and Time Warner. The 55-page opus--written in collaboration with Merrill media analyst Jessica Reif Cohen and two junior analysts--emphatically endorsed the deal, concluding that the shares of both AOL and Time Warner were undervalued, and predicted an 80 percent price gain for each within 12 to 18 months. That assessment, he knew, would light a fire under both stocks.
Next, the news had to be disseminated. At 7:15, Blodget and Cohen were the star attractions of Merrill's technology conference call, broadcast daily to the offices of more than 600 institutional salespeople and 14,000 retail brokers around the country. At 7:30, the two analysts were back on the squawk box for Merrill's longer and more general morning call. And at 10:00, Blodget and Cohen held a conference call with institutional investors.
At the close of trading, Time Warner had jumped nearly 11 percent, while AOL had skyrocketed 17.5 percent on turnover of more than 43 million shares, almost three times the volume of any other stock on the New York Stock Exchange that day. One reason for the surge in interest was that the Merrill report was the first major piece of Wall Street research to put a price target on the combined AOL Time Warner, whose merger had been announced January 10. "With AOL, there were a lot of people sitting on the sidelines who liked the stock and were waiting for a reason to buy it," Blodget explained to me late that afternoon while he marked time between appearances on CNBC's Marketwatch and CNN's Moneyline. "This is a sector that responds very well to catalysts."
In the 14 months since he joined Merrill Lynch, Blodget has become one of those catalysts, an analyst whose influence is second only to that of Mary Meeker of Morgan Stanley Dean Witter. Unlike the press-shy Meeker, Blodget makes time for the media, often appearing on business news programs via the TV cameras Merrill has installed on its trading floor. His high profile is a source of amusement to his boss, technology research head Steven Milunovich. "Steve likes to introduce me at conferences and media events as Elvis," says Blodget, who is thankful that the name hasn't caught on within the firm.
When it comes to moving stocks, Blodget has no peer--not even Meeker. On February 23, the same day he weighed in on AOL, he initiated coverage of online auction site eBay with a buy rating. That day, the stock soared 15 percent. In early January, Internet blue chips AOL, Amazon.com, CMGI, and Yahoo all experienced huge one-day gains when Blodget included them among his top picks for 2000. (For more of his thoughts on investing in the Internet, see page 72.) Blodget's most famous call might be the one he made on Amazon in mid- December 1998, when he was still at Oppenheimer. Blodget, then virtually unknown, predicted that shares of the online bookseller, trading around $240 at the time, would hit $400 within 12 months. Instead, Amazon topped $550 in little more than a month (the equivalent of $92 per share after adjusting for two subsequent stock splits, or some 40 percent above Amazon's recent price). "The call was the equivalent of throwing a tub of gasoline onto a bonfire," acknowledges Blodget.
He insists he only made the call on merit. "Every metric that you could use to gauge Amazon's performance was getting better every quarter," he says. "Revenue growth was spectacular, gross margins were improving, customer acquisition costs were coming down, and the company kept beating the bottom line." But Blodget is a realist. He knows the call put him on Merrill's radar screen, which was a handy place to be after the firm's Internet analyst, Jonathan Cohen, left to direct research at online investment bank Wit Capital.
Milunovich stresses that Blodget was hired less for his ability to move stocks than for his reputation among institutional investors. "Being on the sell side, you have to be able to deal with a lot of different personalities, and Henry does that exceptionally well," Milunovich says. "He's not arrogant; he doesn't talk down to people; and he has the personality to be able to both teach people and learn from them, which is particularly important in covering the Internet." And unlike many busy people on Wall Street, Blodget doesn't let his workload become an excuse for incivility. "He always has this sunny personality, regardless of what's going on around him," says analyst Virginia Syer, one of Blodget's co-authors on the AOL Time Warner report. The worst she can say about him is that "when he's overstimulated, he may tune you out."
Blodget's newfound prominence could not come at a better time for Merrill Lynch. The analyst is crucial if the firm is to leap into the very top tier of technology investment banks, now the sole province of Morgan Stanley and Goldman Sachs. "The analyst is one of the most important parts of the selection process when choosing an underwriter," says Walter Buckley III, chief executive of Internet Capital Group, a holding company that owns major stakes in more than 50 Internet companies. "You need to look at the analyst's position relative to his peers, his understanding of the market, and his commitment to your company."
Last year, when Buckley decided to take ICG public, he chose Merrill to lead the deal, in large part because he was so impressed with Blodget's ability to understand the business and communicate with investors. ICG went public on August 5, raising $180 million, at a time when most companies were pulling their offerings off the table because of difficult market conditions. Early investors were richly rewarded. For the year, ICG was up 1,291 percent from its first-day closing price, making it one of the top-performing Internet IPOs of 1999.
Merrill's bankers hold up ICG as proof of what they can do. But the denizens of Silicon Valley just shrug. "Merrill is a great firm in the same way GM is a great car company," says a prominent venture capitalist who doesn't want his name used. "It's a great big company, but 'great' modifies 'big,' not 'company.'" The same call that made Blodget's reputation in the rest of the world tainted it in Silicon Valley. "He established his MO with his call on Amazon, and he's stuck with it," says the VC. "He epitomizes the sell-side mentality, that the best way to build a brand is to love all the stocks all the time." That's neither fair nor true--nor has this man ever met Blodget--but it's a widespread perception in the Valley.
The fact is that since Blodget arrived at Merrill, he has consistently argued that 75 percent of all Internet companies will be out of business in the next three to five years. "I continue to feel good about the strongest companies like Yahoo and AOL, but they make up only 10 percent of the opportunity," he says. "I'm actually horrendously pessimistic about all the rest." Blodget has a lot of work ahead of him to win over Silicon Valley. Morgan Stanley and Goldman Sachs have been major presences in the Valley since the mid-1980s and have deep ties to the venture capital firms. Merrill Lynch has been on the scene only since 1996. "Ultimately, this business comes down to human relationships," says Blodget. "The differences between the firms are not that compelling."
For his part, Blodget plans to start focusing on building his own set of relationships in the Valley come this fall. By then, he says, his team of research analysts should be able to handle most of the day-to-day coverage and the writing, freeing him up to spend more time with VCs. Sounds as if he'd better gear up for a few more 14-hour days.
Michael Peltz is Worth's financial editor.
THE INTERNET ACCORDING TO ELVIS
BLODGET'S RULES FOR INVESTING IN THE WEB
INVEST in a basket of high-quality direct Internet stocks. Among Blodget's favorites: Amazon, AOL, Homestore, and Yahoo in the business-to-consumer sector; Ariba and Internet Capital Group for business-to-business; and Internet infrastructure companies Exodus Communications, Infospace, and Inktomi.
ALLOCATE no more than 5 to 10 percent of your portfolio to direct Internet investments. Be prepared for price swings of at least 50 percent in either direction.
REMEMBER that the least risky Internet investments--the sector leaders--are also the most expensive. Look for those with great management, huge market opportunities, and strong sequential revenue growth.
EXPECT the prices of the leading Internet stocks to remain sky- high until their fundamentals weaken or stop improving. Valuation alone won't bring them down. Recognize that Internet stocks are news and sentiment driven, so try to get a sense of what could be coming next.
worth.com
4/6/00 - Merrill Lynch analyst Henry Blodgett initiated coverage of SFE with a 1/1 rating and a $100 target based on a project 1.4 premium to forecast NAV of 8.2 Billion (vs. approx. 5.1 Billion now). Closed at $50 then.
Message 13366213
NEW YORK, March 15 (Reuters) - Merrill Lynch & Co. on Wednesday said it had begun research coverage on shares of
online business-to-business marketplace operator VerticalNet Inc. with initial ratings of near-term accumulate, long-term buy. In a research note, analyst Henry Blodgett said:
-- he set a 12-18 month price target of $350.
-- he expects VerticalNet shares to remain volatile and would not be surprised to see shares consolidate over the near term.
-- he would view any weakness in the stock as a buying
opportunity.
-- he considered VerticalNet a core business-to-business
holding. Message 13247654
Closed at $217 split adjusted then. 2/1 split in March.
Alledgedly had a $300 target on CMGI ($150 split adjusted in the fall, but no link.
Jack |
