Could Henry Blodget be a $15 billion liability? Easy

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Nick Douglas

09/29/06 01:55PM

Filed to: Henry Blodget

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Amazon's stock will hit $400, predicted analyst Henry Blodget in 1998. It didn't. The stock now trades at $32.14, but Blodget got attention and a job at Merrill Lynch. Never mind that he was a journalist by trade, with no analyst training. One dot-com bomb later, Merrill let him go, Eliot Spitzer charged him with securities fraud (he settled), and the "analyst" was banned from the securities industry for life.

Blodget recently resurfaced on a blog called "Internet Outsider." His latest post begins: "The most surprising thing about RBC analyst Jordan Rohan's comment that MySpace could be worth $10-$20 billion in a few years is that he deemed this assessment 'audacious'—and the press seemed to agree. Why is this audacious?"

Ahem. It's audacious because the company, bought for $518 million, is so precariously perched on an aging model of social networking that it could lose its sweet advertising deals as soon as the market implodes.

Given all of this, it's distressing to see Blodget quoted — without irony — in the New York Times. These days, Blodget is practically a voice of reason. A scary thought, unless you're into the "blind seer" archetype.

Could Microsoft Bid for eBay? [NYT DealBook]
Internet Outsider [Blodget's blog]
Henry Blodget [Wikipedia]

The following replies are approved. To see additional replies that are pending approval, click Show Pending. Warning: These may contain graphic material.

tokemak Nick Douglas 09/29/06 03:02PM

Here's a tip for the cub financial reporter: When you are comparing historical stock prices to present value, you have to factor in the effect of splits. AMZN has split three times since 1998, which makes the Blodgett prediction still wrong but not as ridiculously off-base as you have it.

The reason for the Spitzer settlement wasn't because Blodget was untrained or bad at predicting the future (plenty of analysts are terrible at that, particularly in technology) but because they accused him of pumping up stocks in public only to trash them behind closed doors.

An even more egregiously errant forecast than Blodgett's was Safa Rashtchy's prediction a year ago that Google would go to $600. The only reason why Rashtchy got away with it is because GOOG still doubled in price in the last year. But it ain't going to $600 anytime soon.

Owen Thomas Nick Douglas 10/01/06 02:39PM

Actually, the assertion in the second sentence of this item is simply dead wrong, and the error colors the rest of your take, Nick. Adjusting for splits, [Amazon.com] hit Blodget's $400 target on January 6, 1999, when it closed at 8 - the equivalent of $414 before a 3:1 split the day before. Blodget won fame - and a job at Merrill Lynch - by making a call that was correct at the time. It's easy to forget that in the aftermath of the bubble. (Note that the stock subsequently split again, 2:1, making Blodget's target $67 in today's shares.)

Do your readers a favor and read this book before writing about stocks again.

EricS Nick Douglas 09/29/06 04:41PM

FWIW, Amazon DID hit $400 a share, and just weeks after Henry make the prediction. It didn't STAY over $400 for long. But it did actually get there, and in a hurry; almost immediately, Merrill hired him to be its Internet analyst. (I think he was at Oppenheimer at the time he made the call.) And the rest is history...

wireless Nick Douglas 09/29/06 04:23PM

What is it with Valleywag always hatin on MySpace? Also, I don't know where you got your $518m, it is wrong.

And what is it with randoms always hatin on Google's stock price? They should do a 20 for 1 stock split and then Safa's price target will only be $30. Much more reasonable!