Despite Assaults on Amazon, Net Sector Manages Slight Gain

The Internet sector lagged the broader market surge after several Amazon downgrades tempered enthusiasm from this morning's ECI.
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Henry Blodget is at it again.

Made famous (at least in the Internet world) for his cognizant

prediction that

(AMZN) - Get Report

would reach 400,

Merrill Lynch

analyst Blodget was one of several analysts to downgrade Amazon after its third-quarter earnings

report last night.

Amazon was down 7 1/4, or around 10%, at 68 11/16 in recent trading and was helping keep gains in the Internet sector in check following a friendly

Employment Cost Index

report this morning. Internet Sector

index was up 6.74, or 1.0%, at 713.23.

Blodget downgraded's intermediate-term rating to accumulate from buy, though he maintained a long-term buy on the stock. It is the second time in less than a week that Blodget has downgraded a stock.



felt his

wrath last week. Both stocks were part of Blodget's

holiday basket of buys back in August.

Like most analysts, Blodget was relatively pleased with Amazon's third-quarter earnings, saying the numbers were solid and worthy of a B+ rating. But in his note today, Blodget wrote that "as has become numbingly routine of late, however, it also substantially increased future loss guidance without increasing revenue guidance by a similar amount." While he contended that he believes that Amazon will eventually "win the e-commerce game," he wrote that "at some point soon, however, we believe investors will become as tired as we are of endless postponement of gratification." Merrill has not done underwriting for Amazon.

Prudential Securities

downgraded Amazon to hold from strong buy due to "deteriorating fundamentals" and "weakening of the economic business model." Analyst Mark Rowen noted concern over profit margins that he claimed would be around 2% to 3% in the fourth quarter if cost of goods sold were adjusted for fulfillment costs. Prudential has not done underwriting for Amazon.


CIBC World Markets

, Blodget's old firm, downgraded the stock to hold from buy. Analyst John Segrich told


the report was "incredibly disappointing," and the company's continued emphasis at spending at the expense of profits was "unacceptable to the investment community."

Coming to Amazon's defense was


, which expected Amazon's stock to get hit today, but said "savvy investors should recognize this is a mistake and use weakness as a buying opportunity." Analysts claimed that Amazon provided guidance that the company could near break-even operating results by the end of 2000, which they said was "a very big step." Robinson-Humphrey's parent firm,

Salomon Smith Barney

, has done underwriting for Amazon.