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Blodget: New Amazon Target?

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By howardroark
February 23, 2001

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On Wednesday, Merrill Lynch analyst Henry Blodget put a stock price on Amazon.com of $8. "We estimate that the valuation floor, assuming no further reduction in estimates, is probably about $8," based on a multiple of one times '01 expected revenue of $3.3 billion, he said. Blodget had previously pegged Amazon's revenue to grow to $3.5 billion, as guided by Amazon after its fourth-quarter conference call. Blodget joins other analyst at the low-end of projections.

The word ironic is often misused, but is particularly apt for instances of poignantly incongruent behavior marked by perverse results.

On December 16, 1998, Amazon jumped over $46 dollars a share to a pre-split $289 per share on news that CIBC Oppenheimer analyst Henry Blodget had announced a $400 price target. Amazon shot passed that target less than three weeks hence. In January, as Amazon shot over the pre-split $500 level, Blodget said:

"Unlike with other famous bubbles...the Internet bubble is riding on rock-solid fundamentals, perhaps stronger than any the market has seen before. Underlying the crazy price increases are the foundations of what could become the early 21st century's leading growth companies, a group that in my opinion will include America Online, Yahoo and Amazon.com. So while the October-to-January run-ups have been crazy, the urge to invest in the companies that have seen the biggest pops is not. Just because the Internet stock phenomenon looks like a bubble, it isn't a given that the bubble will burst."

In March, with Amazon still over the $400 level pre-split, Blodget provided some risk analysis for attentive investors:

"The belief (here is) that the real 'risk' in such open-ended opportunities is not losing money, but missing big upside. The Internet (is) a global megatrend, along the lines of the printing press, the telephone and the computer, that is changing the way companies and people communicate, research, buy, sell, and distribute goods and services, and spend leisure time."


Meanwhile, Merrill Lynch's Jonathan Cohen countered Blodget's $400 dollar price target with a price target of $50, pre-split, the day after Blodget's big call. They debated sound bites on CNBC soon after. A month later, Cohen left Merrill and Blodget replaced him, although Cohen's departure was supposedly his decision. Blodget, meanwhile, got very, very famous.

Now, despite Amazon having blasted past Blodget's 1998 revenue estimates for the year 2000 and 2001 estimates, he apparently "estimate[s] that the valuation floor, assuming no further reduction in estimates, is probably about $8." I don't know what a "valuation floor" is - maybe it's found on the same page as Suria's "operating cash balance" in the analyst's guide to jargon - but I did notice one thing.

Cohen's 1998 $50 price target was pre-split. Split adjusted to today, his price target turns out to be exactly $8.33 per share, or, $0.33 per share (and two+ years) more bullish than Mssr. Blodget's current "valuation floor." The worst part of this debacle might seem like it's Blodget's bold yet fickle rhetoric, or the odd symmetry of crisscrossing price targets of yesteryear, but I think it might be this more recent comment from Jonathan Cohen:

On Wall Street, being right on the fundamentals and wrong on the timing is the same as just being wrong. The fact that our underlying analysis has proven to be ahead of its time isn't something I get any gratification from.

Caveat investor.