Same guy?
Morgan Stanley Apologizes for Exodus: Call of the Day (Update1)
By David Wells
New York, June 19 (Bloomberg) -- Morgan Stanley Dean Witter & Co.'s Jeffrey Camp has a message for investors who bought Exodus Communications Inc. shares in the past year on his recommendation: He was wrong and he's sorry.
The analyst today began discouraging investors from buying shares in Exodus, which manages other companies' web sites, for the first time since he started following it in 1999. The stock has since fallen 81 percent and is down 98 percent from a high of $173.31 in March 2000.
``There are few moments in my career that rival this one in its difficulty and unpleasantness,'' Camp wrote in a report. ``Elbert Hubbard said, `The line between failure and success is so fine, we scarcely know when we pass it.' But passed it I have, and it is time to own up.'''
Apologies are rare among the hundreds of Wall Street analysts who, at the height of the Internet bubble, recommended stocks that now have lost nearly all their value. Exodus today fell 78 cents, or 22 percent, to $2.84.
Credit Suisse First Boston's Tim Newington yesterday lowered his rating on Exodus to ``hold'' from ``buy.'' Both he and Prudential Securities Inc.'s Michael Turits cut their 2001 and 2002 revenue estimates, though Turits kept his ``buy'' rating. W.R. Hambrecht & Co.'s Gregory Gore, who never recommended purchasing the shares, cut his estimates on Thursday.
Telling investors to buy Exodus for so long ``is the worst mistake I've made'' in 10 years as an analyst, Camp, 32, said in an interview. ``Today was meant to rectify my mistake.''
Dot-com Debacle
Camp lowered his rating to ``neutral'' from ``strong buy.'' He dropped his revenue estimate for a third time, cutting his 2001 forecast by 8 percent to $1.4 billion and 2002 by 27 percent to $1.9 billion.
He didn't rate the stock ``sell'' because he's not sure the company's business will weaken further, Camp said. ``I can make as reasonable an argument that things are deteriorating from here as I can that they will improve,'' he said. ``I want to get the right rating. Clearly we didn't have it for a time.''
Exodus, based in Santa Clara, California, manages Web sites. Customers include Merrill Lynch & Co., Yahoo! Inc., Ebay Inc., and Johnson & Johnson.
The company reported a first-quarter loss this year of $650 million. It also slashed 2001 sales forecasts and fired Chief Financial Officer Marshall Case. Company representatives didn't return calls.
Sales are falling as Internet companies fail and customers spend less on Web sites. Analysts now worry that Exodus will run out of cash and won't be able to raise more money.
CSFB's Newington said in his seven-page note that Exodus may not earn enough before income tax, depreciation and amortization this quarter or next to comply with the terms of its $600 million credit line. Morgan Stanley helped arrange the credit line.
Exodus's 11.625 percent senior notes due 2010 have plunged by more than half since January, when they were trading at about 100, or par, traders said. The notes were recently bid at 44 cents on the dollar, down almost 20 percent this week, they said.
Cash
In his report, Camp said Exodus will end the year with less than $250 million cash, down from $1.1 billion at the end of the first quarter. He said the company will still have access to the credit line.
``I didn't think the deterioration of the business was going to be this fast and this extreme,'' Camp said in the interview. ``I get paid to try and pick stocks that will do well. The fact that (the stock) was falling wasn't an incentive to change my rating but to look to see if there was any reason why it was falling.''
Until last week, Camp saw an opportunity to buy, not a reason to sell. Camp, who talks to at least one of his 20 or so contacts at Exodus on an almost daily basis, said discussions last week with management and customers led him to believe his revenue estimates were too high and the company may need to raise more money.
Camp said that in hindsight he should have guided investors away from Exodus shares in mid-2000, a time when it should have been ``increasingly clear'' that Exodus was headed for ``harder times.''
He said his second chance came in the first quarter. He lowered his recommendation on Akamai Technologies Inc. to ``neutral'' then, yet left Exodus alone because he thought ``things had bottomed.''
Of the 37 analysts who cover Exodus, 70 percent have ``buy'' ratings on the company and 30 percent have ``hold'' ratings.
Owning Up
Some investors say they want to hear more analysts own up to their errors.
``Saying these are the reasons why I was wrong and learning from those mistakes is a part of making yourself a better analyst,'' said David Rolfe, chief investment officer of Wedgewood Partners Inc. in St. Louis, which manages about $200 million. ``It's refreshing. If anything we need more of that.''
In writing his apology, Camp cited the words of Hubbard, a writer who died with his wife on May 7, 1915, when the cruise ship Lusitania was sunk by a German submarine.
``I read a lot and like some of his stuff,'' Camp said. ``I was very close to using a W.E.B. Dubois quote that basically says I may not always be right, but I'm always sincere.''
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