On Monday Amazon.com announced sales were running ahead of expectations. Wall Street analyst Henry Blodget forecast better days ahead for the cash-strapped online retailer. So did Mary Meeker of Morgan Stanley. Amazon's share values shot up. Sounds familiar? History repeats itself, and it can be very forgiving. Internet analysts Henry Blodget and Mary Meeker are still leading the game, despite the much-criticised role they played in hyping Amazon and other dot.com stocks as the Nasdaq bubble swelled to bursting in the late 1990s.
The red-headed Blodget predicted in 1998 that Amazon stock would rise to $400 (€450) from its then astonishingly-high level of $243. The brash forecast of the 33-year-old unknown got so much media attention that Amazon hit $400 within three weeks. Mr Blodget was hired by Merrill Lynch, became a Wall Street cult figure and was interviewed no less than 816 times on television last year. Typical of his advice was this: "Internet capital has the potential to emerge as the dominant 21st century operating model for creating shareholder value." Since the heady days of Blodget hype, Amazon has fallen precipitously, closing at $11.18 on Monday. This leaves it on a par with the six top stocks recommended by Mary Meeker, all underwritten by her company Morgan Stanley, which have fallen by 67 to 96 per cent. In the post dot.com witch hunt, Blodget and Meeker are natural targets. Both work for Wall Street firms which stood to gain by the buying frenzy being whipped up. Both reportedly made some $15 million as Internet stocks took off. There is some soul searching going on in the media about its role in making celebrities of analysts, who might better be treated as highly-paid sales promoters.
They were invited to star in the financial soap opera of business channels like CNBC covering Wall Street. These make once-dull financial reporting a minute-by-minute drama ("Will company X beat expectations? Tune in after this . . .")
Howard Kurtz, media analyst of the Washington Post, pointed out that business magazines were also guilty of irrational exuberance. Even Time made Amazon's Jeff Bezos man of the year. The message was clear, he said. It was that the "rocket was leaving the platform". Joseph Nocera of Fortune magazine, who in 1999 challenged Blodget's analysis of Internet stocks as "part of the bubble", argues that mainstream financial reporting has actually got better, but that websites such as CBS MarketWatch, Motley Fool and The Street.com promoted the idea "that the Internet was the future and all us fuddy-duddies in the old media didn't get it".
Blodget today says that "from 1995 to 2000 the real risk was missing the rise". He admits to over-optimism and predicts 95 per cent of dot.com stocks will disappear. In January however he still had no "sell" recommendation on any of the stocks he covered.
"Times change," he said last month. "The market went from saying `we like companies that are growing quickly but are losing a lot of money' to saying `we want to see earnings'. It's very hard to predict a 180-degree turn like that." Mary Meeker, once "Queen of the Internet" who made the cover of Fortune and a profile in the New Yorker, said recently she had a bad year and never aspired to becoming the "poster-child" for dot.com mania. Both concede that they were slow to downgrade stocks. This is hard to take for bruised investors who swallowed the TV sound-bites and bid the stocks up in a frenzy of speculation. A New York doctor has filed a $10 million lawsuit against Blodget, alleging that stock analysts engaged in "systematic fraud on an industry-wide basis" over the past few years. Shooting the analyst is now a popular sport. "How could so many who are paid so much to scrutinise companies have blown it so spectacularly for their investor companies?" asked New York Times columnist, Gretchen Morgenstern.
Investment houses have a big credibility problem explaining how the quality of their analysts' reviews plummeted as their celebrity stature grew.
Some of their practices have come under a harsh spotlight. Time revealed that JP Morgan instructs analysts to inform a company first when its rating is being revised downwards, and allows the company to ask for a rewrite - the analyst must give a reason for refusing - before it is made public. No analysts have lost their highly-paid jobs, and none have been shot. A few have emerged with enhanced reputations, like Paul Suria, the 29-year-old employee of Lehman Brothers who also came to prominence through his analysis of Amazon. He caused a sensation when he forecast last June that the book-selling company was showing the financial characteristics "that have driven innumerable retailers to disaster throughout history". In February he said Amazon would run out of money this year.
Monday's news from Amazon, seen as a dot.com bellweather, cheered up investors a little and raised hopes that the world's biggest online retailer may reach profit without needing more cash. It gave the bulls a chance to raise their heads.
"Perhaps some of the incessant public thrashing that the company is receiving will begin to subside," said Mary Meeker, who added she hoped sentiment would now swing back to dot.coms.
