(October 24) – “In the land of the blind, the one-eyed analyst is queen,” writes Alex Berenson in today’s New York Times.
“That seems to be the lesson of the rapid rise of Holly Becker, a Lehman Brothers analyst who has quickly become one of Wall Street’s most influential voices on Internet stocks.”
“A former top-ranked consumer products analyst at Salomon Smith Barney, Ms. Becker began covering Internet companies like Amazon .com and eBay only last December. She did not issue her first bearish rating on an Internet stock until May, when she turned negative on eToys, which had already fallen more than 90 percent from its highs. At that point, most Internet stocks had already crashed.”
“Then, in June, Ms. Becker began coverage on Yahoo, which at the time had largely escaped the worst of the Internet sector’s plunge, with a warning that the Web portal company was unlikely to grow fast enough to justify its $70 billion market valuation.”
“After talking to 60 big advertisers like Procter & Gamble, she concluded that old economy companies would be slow to shift a significant portion of their ad spending onto the Internet and that Internet companies, which accounted for nearly half of Yahoo’s ad sales, would soon cut spending to conserve cash.”
“And unlike many Internet analysts, who fell into the habit in 1998 and 1999 of valuing Internet companies by page views, projected lifetime customer profitability, and other dubious metrics, Ms. Becker stuck to the tried and true method of valuing Yahoo based on its price-earnings ratio and earnings growth rate. She rated Yahoo neutral, a sharply negative signal, considering that outright sell rankings on stocks are rare.”
“Since Ms. Becker’s report, Yahoo has fallen about 60 percent. And Ms. Becker has become Wall Street’s most influential Internet analyst, replacing Mary Meeker of Morgan Stanley Dean Witter and Henry Blodget of Merrill Lynch, bulls who were heroes in 1998 and 1999 as Internet stocks soared. (Ms. Meeker and Mr. Blodget did not return calls for comment on this article.)”
“Last week, Ms. Becker again demonstrated her power. Her warning that America Online, the world’s largest Internet company, was no longer a short-term ‘trading buy’ helped knock AOL shares from $53 on Oct. 16, to $37 by Oct. 18, shaving nearly $40 billion from the company’s market valuation. The stock later regained some of its losses, closing yesterday at $47.94.”
” ‘Holly went out on a limb at a time when every other sell-side analyst was pounding the table, and she looks really smart now,’ said Seth Tobias, manager of a $450 million hedge fund and a big fan of Ms. Becker.”
“Mr. Tobias said the bullishness displayed by Ms. Meeker and Mr. Blodget had damaged their credibility as Internet stocks plunged this year. Those analysts have maintained positive ratings on nearly all the companies they cover this year, even as Internet stocks have plunged in the face of mounting concerns that many Internet companies will never be profitable.”