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Blodget Bares Teeth on Amazon, but Few Notice

An email snafu at Merrill Lynch keeps the Net analyst's comments quiet.
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Henry Blodget spoke, but for once no one seemed to hear.

Blodget, the Merrill Lynch Internet analyst whose reputation most visibly waxed and waned along with the dot-com bubble, penned a bearish report Thursday on online retailer

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. But the report wasn't widely distributed because of email problems at Merrill Lynch, which fled its headquarters in the World Financial Center after the neighboring World Trade Center was attacked.

The email snafu is notable because Blodget's fortunes have been linked with those of Amazon by a call he made in 1998, soon after the onset of the Internet bubble. Thursday's report on Amazon ranks among Blodget's more critical comments about the e-tailer, but it appears to have had little effect because of the disruption wrought by the terrorist attacks.

The report offers further evidence that Wall Street is becoming

increasingly concerned about Amazon's financial future should the economy dip into recession, as many economists are predicting. In the days following the terrorist attacks, many other retailers have updated investors on their businesses, and most reports haven't been pretty. This week, Goldman Sachs also lowered estimates for most e-commerce companies, including Amazon.

Slashing Away

In Thursday's report, Blodget slashed sales and earnings estimates for the next two quarters and next year, citing the slowing economy. "We are reducing our estimates for Amazon as a result of the

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World Trade Center disaster and an expected slowdown in consumer spending," he wrote. "This should mean fewer new customers and lower spending per customer." Nevertheless, Blodget kept his short-term accumulate and long-term buy ratings on Amazon. (His firm doesn't have a banking relationship with Amazon.)

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Amazon shares in marketwide free fall

Amazon itself hasn't offered any financial guidance, but that hasn't kept investors from assuming the worst and selling the stock off along with most of its tech peers since the markets reopened last week. Amazon has lost 25% of its value in that span, though it was up a nickel Friday at $6.25, leaving it more than 90% below its high.

In Thursday's report, Blodget reduced his fourth-quarter revenue target by 4% to $1.02 billion. Notably, he wrote that the company could have trouble meeting its highly publicized goal of breaking even for the first time in the fourth quarter. "We still expect the company to post a slight operating profit in Q4, but this could slip to a small loss," he wrote.

Blodget also cut his revenue estimate for 2002 to $3.5 billion from $3.7 billion, which would equate to only 15% growth over 2001. It wasn't long ago that the consensus estimate was for the company to achieve around 30% sales growth next year. Blodget also reduced his average annual revenue growth rate to 13% from 18% through 2005.

Blodget put a $10 price target on the stock, although he qualified that by saying that its current price in the $6 range "is still not inexpensive enough to provide solid downside protection."

Upstairs, Downstairs

Blodget made his name on Wall Street in December 1998, when he set an improbably bullish price target on Amazon, then trading at around $240. But after the stock promptly punched through his $400 target, his utterances were received in some froth-ridden quarters as prophecies. Then, as the bubble burst and Net stocks began their inexorable decline, he and other Internet analysts found themselves subjected to an ocean of venom from investors who said they lost fortunes in sagging tech stocks.

That Blodget, once among the most vocal cheerleaders for Amazon, would turn this bearish surprised some observers. "For someone who's been a permabull, those are fighting words," says one money manager who is bearish on the company.

Probably better that they were spoken so softly, then.