THREAD ---AN article in Barron's this Sunday ---
ecember 21, 1998
'Net Queen
How Mary Meeker came to rule the Internet
By Andrew Bary
Tables: Meeker's Universe | Thin Float
Just about everybody in America knows that Internet mania has been
sweeping Wall Street lately, ballooning the value of once-fledgling companies to
unbelievable heights. But only the cognoscenti realize that a lot of this
excitement has been whipped up by Mary Meeker, a 38-year-old analyst at
Morgan Stanley Dean Witter. In Wall Street parlance, Meeker is known as the
"axe" for the Internet sector, meaning she is the most influential analyst around.
Indeed, for big institutional investors, an Internet stock hasn't arrived until it has
Meeker's stamp of approval.
"An awful lot of analysts have never met a stock they didn't like. But Mary has
done a brilliant job of identifying the winners, the ones that go up tenfold," says
Roger McNamee, a partner at Integral Capital Partners in Menlo Park,
California.
While most analysts are happy to have recommended a single stock that goes
on to climb tenfold, Meeker can claim four: America Online, Dell Computer,
Compaq Computer and Microsoft. Her current favorites include Yahoo,
Amazon.com, eBay, AOL, @Home and Microsoft.
Says Pamela Cutrell, a vice president and analyst at Essex Investment
Management in Boston, which has sizable Internet holdings, "When Mary
speaks, people listen."
Meeker's power stems from the fact that the world of Internet stocks is full of
potential yet fraught with danger, too. No one really knows what some of these
stocks will be worth a year from now. For that reason, investors in Internet
stocks are always eager for guidance.
A Sample of Meekerisms
Unlike analysts in most other sectors of the stock market, Meeker doesn't have
the luxury of measuring her stocks against traditional yardsticks like, say, the
relationship between a company's stock price and its earnings per share. After
all, most of the companies Meeker covers don't have any earnings, and they
might not for years to come.
Meeker bases her stock predictions in large part on her broad vision of the
future. Two years ago she wrote a book predicting that the Internet would take
billions of advertising dollars away from TV, radio and print media, and last year
she wrote another one explaining how the 'Net would evolve into a shopping
mecca, competing against traditional retail stores.
At Morgan Stanley, Meeker regularly offers her market intelligence in research
publications and in E-mail messages, always using her trademark breezy writing
style. Of Yahoo, for example, she said last spring, "Hmm, what's the value of
leadership in the fastest-growing medium in the history of the planet?" In a
recent yearend outlook piece, she wrote that stocks of the Internet leaders are
"yes, cheap. Why? It's simple; the market opportunities are really large."
Meeker has been criticized as a cheerleader for Internet stocks, but so far her
predictions have been dead on. Her biggest success was getting investors into
America Online when it was trading at $2 in late 1993. Since then, the stock
has shot up to $105, giving the firm a market value of $50 billion, more than that
of General Motors.
Known as a workaholic, Meeker often puts in 16-hour days, dividing her time
between her office in Morgan Stanley's headquarters near Times Square and
her apartment on Manhattan's Upper West Side. Clients say they sometimes
get an E-mail from Meeker in the middle of the night with her latest view on
some 'Net stock. She travels frequently, spending about half her time on the
road visiting companies and clients.
Meeker is so valuable to Morgan Stanley that she's reportedly one of the
best-paid analysts at the firm, with a compensation package of perhaps several
million dollars a year.
She could be better known by the
public at large, but Meeker has
chosen to keep a relatively low
profile. Even her top institutional
clients find it difficult to reach her on
the phone. Preferring to focus on her
research, Meeker doesn't speak
often to the press, and she appears
only rarely on CNBC, which she
calls the "MTV of my generation."
As a student of financial and
economic history, Meeker is well
aware that a lot of smart people feel
the current Internet mania is one of
the great Wall Street bubbles. But
she isn't ready to pull the plug: "I am
concerned about high stock prices in the near term, but if the companies can
execute, I'm not concerned about high prices long-term at all."
When we interviewed Meeker in her cluttered office, strewn with piles of paper
and software boxes, we asked why individual investors have been so quick to
see the value in Internet stocks, while big institutional investors have done so
only grudgingly. "It's partly the Peter Lynch thing," she responded, referring to
the Fidelity titan's advice to buy stocks in companies whose products you like.
"If you're getting your news on Yahoo, watching the Clinton testimony on
Broadcast.com, just bought a mirrorball, as a friend of mine did, on eBay, and
are doing your Christmas shopping on Amazon, you're more inclined to buy the
stocks."
One of her bullish arguments for Internet stocks is that, eventually, institutional
investors will jump on board in greater numbers. The reason: Almost 90% of all
professional money managers are trailing the Standard & Poor's 500 Index for
the second straight year, partly because the vast majority haven't owned what
she calls the "Nifty 'Nets."
Meeker's detractors say she's trying to justify untenable valuations by changing
the rules of the game and ignoring the manifold risks of the 'Net. A glance at
the accompanying table, which lists the 20 most valuable Internet companies,
shows just how high those prices have run. Yahoo, for example, traded last
week at 212, a staggering 500 times projected 1998 profits and more than 100
times revenues.
Morgan Stanley's Internet Index, an unweighted average of 68 'Net stocks, has
tripled this year, with leaders like Amazon, Yahoo and America Online rising
far more than that.
'Net mania was particularly strong last week as Amazon surged 61 to 284 after
an analyst at CIBC Oppenheimer lifted his price target to $400 a share. At that
price Amazon is now valued at $14 billion, making it the sixth-most-highly
valued retailer in the country-bigger than May Department Stores, for example,
and just a bit behind Sears Roebuck.
Meanwhile, Yahoo shares were up 16 1/2 during the week, to 212; eBay rose
60, to 252 and America Online increased 13 1/2, to 105 1/2 . This recent spurt
has been powered by expectations for strong Internet commerce this
Christmas, which could total $10 billion or more, 10 times what it was a year
ago. Meeker says, "When people see the Christmas data from the companies in
January, they will say 'Wow!' "
But even 'Net fans like McNamee feel valuations have gotten stretched. "The
mania is in full swing. Things have gotten more loopy than they were before,"
he said last week. "At some point, it will be appropriate for Mary to become
less bullish. It'll be interesting to see how she handles it." Adds Essex's Cutrell:
"We dread the day when she decides to downgrade the stocks."
Meeker freely admits that the risks are high, but so are the opportunities, she
insists. "Nothing has happened like this before. It just hasn't. TV and radio took
years to develop. This has taken virtually months." She notes that Internet users
have mushroomed to 80 million today from just five million in 1995. The number
could hit 150 million by 2000, she says. And even with the manifold increase in
the market values of companies like Amazon, Yahoo and eBay, she points out
that the market value of the entire Internet sector, excluding America Online,
totals below $90 billion. That's less than the market value of a good-sized drug
company like Eli Lilly.
Meeker's approach is to try to identify the emerging industry leaders and not let
seemingly high valuations scare her into backing off. Her view is that winners
often get stronger, appropriating market share and profits from weaker players.
One of her basic investing rules is simple: "How big's the market, how high is a
company's market share, and who's No. 1?"
Unlike most analysts, she doesn't set price targets for her stocks because she
doesn't want to be constricted by them. Microsoft, for instance, has risen more
than 300-fold since its split-adjusted IPO price of 39 cents a share in 1986.
Getting out of Microsoft along the way because it hit some artificial price target
would have been a mistake, she says.
"Mary realizes that great stocks are rarely cheap," says Russell Grandinetti, a
former Meeker assistant and now chief of investor relations at Amazon. "She
knows that the one thing about tech investing is that whatever happens next
year isn't what you thought would happen. So she wants to bet on the best
management teams."
Byron Wien, Morgan Stanley domestic strategist, says Meeker recognized early
on that investors would be willing to value Internet companies based on
revenues and not profits as long as there was a hope of substantial profits in the
future.
The Internet industry is still relatively young, but Meeker says winners already
are emerging. "In some categories, it's already 'Game over,' " she avers. "I
wouldn't want to be competing against Yahoo. I wouldn't know how." |
