Mary Meeker: A Love Letter to Net Queen

Mary Meeker, once called "the Queen of the Net," has gotten a bad rap for her bullishness on the sector earlier this decade. But it's time to set the record straight, commend her for her prescient work on the Internet sector and look at what she likes now.

For those who don't recall, or have blocked it out, Meeker was part of the triumvirate of superstar analysts in the late 1990s who rode the boom in the Internet all the way up and all the way down. The other two analysts were Henry "Let's put lipstick on this pig" Blodget and Jack "WorldCom" Grubman. Those two have been discredited and are out of the business.

Meeker, however, has survived, in large part because she saw the potential of the Internet from the beginning. And now, 12 years after her initial recommendation of AOL, when it was a split-adjusted 50 cents and had only 300,000 subscribers, it's pretty clear she has been right, and that the Internet's potential has arrived.

Many of the companies that Meeker recommended through the 1990s have continued to have remarkable success. Her comment from the 1990s when she was picking those stocks: "Go with the leaders. Remember Microsoft vs. Lotus; Cisco vs. Wellfleet; Dell and Compaq vs. Everex." Obviously, she was dead-on about these companies' viability, and she was right about the future of the Internet.

Meeker's writings have always expressed a tension between her role as a stock analyst where, for better or worse, you are judged on your short-term picks, and her role as "Queen of the Net."

It's the latter role that excited her the most, and the fulfillment of the vision she saw beginning with Yahoo! ( YHOO), eBay ( EBAY), and Amazon ( AMZN) (and then Google ( GOOG)).

It's interesting to note that in December 1999, she told Barron's: "I think there will be an e-commerce shake-out in the first quarter of 2000." This was right at the very peak, the middle of a feeding frenzy for Internet shares that lasted until the actual peak, in late first-quarter 2000.

She followed that quote up with another that expressed her visionary side, the side she could never escape and, although it will ultimately play out on her side, forever damned her name to daytraders and short-term investors everywhere:

"There's a good chance that the capital markets will remain robust, in large part because there are a lot of new market opportunities for new Internet players that are truly changing the way business is done."

Today we have Google, which has gone from $0 to $1 billion in earnings in a few years, the fastest company ever to hit that mark, and Yahoo!, Amazon and eBay have completely changed the way we conduct business.

Admirable Faith

Why do I like Meeker? Because she never lost faith. From 2000-02, the era I call "the Dark Ages," many investors thought the Internet was over and had been a scam. The first bubble had burst, and now everyone was able to admit the sheer glee they felt for the people who had money and then lost it.

But throughout this time, Meeker continued to press the "buy" button on Amazon, eBay, and Yahoo! and speak about the rise in Internet advertising, the rise in broadband, and the rise in new ways of conducting commerce. But nobody listened until 2003 when her picks rose 78%.

Why was she so bullish? Broadband.

In early 2001, when broadband usage was clocking in at only 10% of all Internet users, she was saying that by 2005 that number would be closing in on 40%. That usage figure matters because broadband users average 13 hours per week online vs. eight hours for dial-up users.

If you spend more time online, you're going to spend more money online. So was she correct?

Here is her initial diagram from a 2001 powerpoint where she makes her prediction:

Click here for larger image.

Here we are in 2005 and here's what happened:

Click here for larger image.

She was a tiny bit off, but not much. But the key is that the Internet is a long-term play, and Meeker realized that early, and still realizes it.

For example, consider eBay, the stock that Meeker has been perhaps the most bullish on since 1997. When she first became bullish on eBay, the auction site had 4 million classified listings and the entire newspaper industry had 141 million classified listings.

In 2004, the newspaper industry had 120 million listings, and eBay had more than 700 million classified listings. Go ahead and yell that eBay traded at 2,000 times earnings in 1999. So what? This one company eclipsed the 300-year old newspaper industry in eight years.

Bubble 2.0

Bubbles are not necessarily bad. If you owned Qualcomm ( QCOM) in the beginning of 1999 and rode it up from $60 a share to $800 and sold at the top, then you were happy for the bubble. If you owned Scient at $15 and watched it go up 10-20 bucks a day until it hit $200, then you praised God for the bubble. Why did these stocks, and hundreds of others like them, go up? It's because people realized that this new thing, the Internet, was going to change commerce and communication as we knew it.

The problem was: Nobody knew how. So the bubble popped, temporarily, but the Internet kept growing.

Now the bubble's back.

The Netscraft site has the following stat: "2005 is the strongest year ever for Internet growth, as the web has added 17.5 million sites, easily surpassing the previous annual mark of 16 million during the height of the dot-com boom in 2000." The bubble is back, only this time it's making money, improving productivity, increasing commerce and making lives better.

Over the past few months, we've seen the larger "blue chip" Internet companies spend billions of dollars buying start-up companies with little or no revenue. It's no longer an IPO bubble. You don't see "" or its 2005-equivalents going public and going up 500% on the first day.

But you do see companies like Skype being bought for $2.6 billion on minimal revenue by eBay, and on a smaller level you see "dot-coms" with zero to a few million in sales like (bought by Yahoo!), Flickr (bought by Yahoo!), (bought by AOL) and (bought by IACI) being bought for many multiples of sales.

Is this a bubble? Yes. But it's a bubble with substance, and we can all make money from it. This is phase III of a technological transformation that has changed the stock market landscape since the early 1980s.

In Phase I, the early '80s, you saw the mainframes that dominated the corporate landscape replaced by the client-server model. Enterprises could now do their computing locally on a PC instead of like spokes on a wheel connected to a mainframe.

Phase II came when the personal computer boom faded (as far as the stock market was concerned) but software and Web 1.0 rose to take its place. Netscape was a software company and its IPO began the boom.

Phase III is all about what services the Internet can offer.

So what does our queen like for this third phase? Her recent statements and reports state that she is bullish on blogs, mobile data, broadband Internet, and China Internet stocks.

Over the next few weeks, both here on and in my newsletter, I'll be covering the mobile Internet and the China Internet stocks plus some of the niche commerce players to see which companies have the most potential to ride Bubble 2.0.

James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

Interested in more writings from James Altucher? Check out his newsletter, Internet Review. For more information, click here. has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from

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