Victor, is Pcln still your favorite stock? Sara Farley of PaineWebber says Priceline and eBay are revolutionary.
>April 5, 2000
Heard on the Street
Cheerleaders of Internet Grow
Quieter Amid Plunge in Techs
By ROBERT MCGOUGH and CHARLES GASPARINO
Staff Reporters of THE WALL STREET JOURNAL
You wouldn't have known the Nasdaq Stock Market had plunged as much as 575 points by peeking inside the office of Ethan McAfee, Internet analyst at fund firm T. Rowe Price Associates.
"Normally I get tons of calls from every investment bank, saying: 'You should be loading up on this stock,' " Mr. McAfee says. But Tuesday was "the quietest day I've had in a while."
Merrill Lynch Internet analyst Henry Blodget, a longtime Web bull, said he watched the action with "morbid fascination." On the road, he kept abreast of the market with a handheld e-mail and Internet device. "I got market updates every 15 minutes, and every 15 minutes the market went down 100 points."
Was Mr. Blodget saying buy or sell? Nope. "All I could say was 'wow.' "
Tuesday, some of the biggest Internet cheerleaders put down their pompoms, and watched. During the long bull market, these analysts have led the charge, exhorting investors to buy stocks that often lacked any earnings at all, at lofty prices that terrified traditional investors. Many of these analysts encouraged investors to buy on any dips -- and it worked.
There was noticeably less rah-rah Tuesday. Even with Web stocks beaten down, Internet analysts made few changes in their buy recommendations, many of which had been put on stocks at levels dozens of points higher.
What about those analysts with sell recommendations? You've got to be kidding. Sell recommendations are nearly nonexistent these days on Wall Street.
Instead, many Internet analysts are busy hedging their bets. Mary Meeker of Morgan Stanley Dean Witter, dubbed the "Queen of the Internet," last week told the firm's bankers to tone down their "selling memos," or marketing pitches for new Internet stock issues, according to people familiar with the matter.
In an apparent bid to avoid the appearance of hyping expensive stocks, Ms. Meeker stressed to the bankers to try to avoid associating Morgan Stanley's name with financial projections on Internet stocks, and instead attribute such forecasts to "the market," these people say.
Though she generally has remained bullish, Ms. Meeker also has told investors for some time that many Internet stocks are overvalued, and could soon trade lower. But the recent warning to bankers sent a chill through some quarters of the firm, which is one of Wall Street's biggest sellers of Internet initial public offerings, thanks largely to Ms. Meeker's reputation.
In an interview, Ms. Meeker declines to comment on selling memos. But she says the concept of attributing Internet-stock values to the market rather than Morgan Stanley is "not something I disagree with at all."
After all, she says, there is too much uncertainty about the near-term future of such shares. "I feel better now than I felt in the morning" when the Nasdaq Stock Market plunged more than 10%. "But you never want to catch a falling knife."
Her advice to investors? Know your risk tolerance when buying Internet shares. "For some people, it will be zero, some 5% and some 25%" of their portfolio. She declines to say how much of her own personal wealth is in such stocks.
Like Ms. Meeker, Merrill's Mr. Blodget has been issuing warnings on this sector for some time -- while also being a strong bull on some stocks. He says, for instance, that he has just 10% of his personal portfolio in Internet stocks, and in about only a dozen or so established companies, like Yahoo!, America Online and Amazon.com.
"In this market," he says, "you have two choices: Either you sit on the sidelines, or you say you want to be in companies that you feel comfortable with."
Sara Farley, an Internet analyst at PaineWebber Group who has an unusually luke-warm neutral rating on Amazon, continued to advocate stocks such as Priceline.com and eBay to clients on her trip Tuesday to California from New York.
Such companies, she argues, are revolutionary, and need less capital than companies that resemble traditional stores that happen to sell through the Internet. She decried "the lemming mentality, being driven by a lot of momentum investors who buy what's hot, and sell it when it's not."
As it turns out, Tuesday was a surprisingly good day for Priceline, up $9.875 to $75.25 in Nasdaq 4 p.m. trading, and eBay, up $23.75 to $167.
Down the hall, the Internet stock analysts' cousins in technology weren't reshuffling their recommendations either, despite the news that a federal judge had found that Microsoft violated federal antitrust law. "For most of us, what's happening with the trial is what was expected," says Don Young, an analyst at PaineWebber Group who maintained his strong buy on Microsoft.
But elsewhere at brokerage firms, the decline in Internet stocks was putting a crimp in investment-banking prospects. At least for the moment, deals involving Internet companies are being held up at some big investment houses, and Internet chief executives, who only two weeks ago were being openly courted by Wall Street investment bankers, are now the ones doing most of the courting.
"Wall Street is obviously going to be more selective and more demanding for the near term," says Mark Hantho, managing direct of equity capital markets at Morgan Stanley Dean Witter.
A flight to quality -- as it is defined in terms of Internet stocks -- was evident during the day, especially late in the session, says analyst Stewart Halpern, the bullish managing director of new media and entertainment equity research at Banc of America Securities. He argues that Yahoo is worth $200 a share, and is a buy at this price: $167.38 in 4 p.m. Nasdaq trading.
Such days, however, take their toll, he concedes: "Days like [Tuesday] obviously are stressful and can be kind of depressing."
Of course, there still were a few brave bulls among the analysts. Lauren Cooks Levitan, a senior Internet analyst at Robertson Stephens, says she hasn't changed her view on her favorite Internet stocks, including Priceline.com, Amazon, eToys and Webvan Group.
She says she can't put her personal money into stocks that she covers, but that Tuesday, she bought Nasdaq-100 Trust, Series I stock, essentially a tracking stock for the Nasdaq 100. Says Ms. Levitan: "It's a bet that the Nasdaq doesn't stay like this for long." |
