Report Card: Henry Blodget

Henry Blodget Merrill Lynch
	Report Card 1* Overall rank 1* Rank by institutions 15* Rank by stock picking Makes money for me Saves me from disaster Makes me think Tells the truth Meaningful service, not overkill Well-connected *Out of 28. Best star rating is 3 stars. Click here for our methodology.
1st Place Internet Software and Services

Biography

B.A., Yale University. Blodget began his career as a freelance journalist and joined the corporate finance department at Prudential Securities in 1994. He went on to become the senior Internet analyst at CIBC World Markets. In 1999 he joined Merrill Lynch, where he is the senior Internet/electronic commerce analyst.

Industry Outlook and Style

The Winners

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In a volatile and rapidly changing industry, Henry Blodget saw the potential early on. In a famous December 1998 call, Blodget set a then-unheard of 400 target (presplit) for Amazon.com(AMZN Quote), and the stock broke through it less than a month later, gaining 128%. Now that the consumer Internet industry is entering a more "mature" phase of development, investors hope Blodget will be right again in helping them identify winners. Says one portfolio manager: "He makes the tough calls, using common sense in the irrational world of Internet stocks." Another concurs: "Henry has a realistic assessment of growth rates in emerging tech companies, unlike the others."

In After the Fall: The Outlook for the Consumer Internet Industry, a comprehensive 300-page report issued on June 7, Blodget says that despite the general grimness, prospects for the industry leaders are still rosy. "We expect growth of traffic, advertising, commerce, wireless, interactive TV, and international to fuel annual earnings growth of 30%-100% at the leading companies for the next several years," he writes. He predicts that by 2005, global business-to-consumer market capitalization will hit $2 trillion, up from about $500 billion today.

Winners will include AOL(AOL Quote), Yahoo!(YHOO Quote), Amazon, eBay(EBAY Quote) and DoubleClick(DCLK Quote), Blodget says. (Merrill has provided investment banking services for AOL, Yahoo!, eBay and DoubleClick.)

But there will be many, many losers. "Consumer internet is a brutally competitive, winner-take-most business," explains Blodget, noting, "Of 300 public B2C companies, only 5 are profitable." In three years, he estimates, no more than 20 will be profitable, and many of these are not yet public. Of the current crop, says Blodget, most will "merge, go bankrupt, or quietly fade away."

Blodget's basic Internet investment philosophy is simple enough: Pay up for quality and try to pick good entry points. But only the most aggressive investors should be in this market, he says. For everyone else, he recommends as the "sanest" Internet strategy an indirect approach: "Own the stock of Old-Economy companies positioned to benefit from the Internet."

Stock Pick

Favorite stock for next 12 months:
America Online

Comment:
"The most stable investment opportunity in a sector that is anything but," wrote Blodget of AOL in After the Fall.

Rate Their Stock Picks: Which stock do you like best? Blodget/Baker AOL Meeker* Yahoo! * Blodget and Baker each gave us their top stock pick. For Meeker's pick, her firm identified Yahoo! as a stock on her list of stocks expected to outperform others in the industry.