Tech's Cheerleader Won't Say Die

Analyst Mary Meeker still rates Yahoo! and others a buy

The news came down at 5 p.m. on Apr. 11, and it was ugly. Yahoo! Inc. (YHOO ), one of the bluebloods of the Web, reported that its revenues for the first quarter had dropped a sickening 22%, and it had suffered a loss due to the collapse of dot-com advertising. The company would have to fire 420 people, its first layoff ever. Yahoo's stock closed that day at a measly $15 a share--down 94% from its all-time peak of $237. Of the 33 analysts who cover the stock, 24 rated it a sell or hold.

Not Mary Meeker. Morgan Stanley Dean Witter's Net analyst is stubbornly sticking with a buy rating. Her rationale: With the price so low, this is no time to sell. "If we believe in the business, the last thing we're going to do is downgrade it at the bottom," she says.

At least she's consistent. Meeker has been Wall Street's No. 1 cheerleader for the Internet. In a series of reports from 1995 to 1997, she built the case for a tech revolution that would crush the pillars of the media and retailing Establishments, creating a new world order dominated by dot-coms. She helped profitless startups go public, counseled CEOs such as Inc.'s (AMZN ) Jeff Bezos on strategy, and wrote glowing recommendations of her picks. And as stocks blasted into the stratosphere, so did Meeker. At the peak of her influence, in 1999, she had requests for 400 speaking engagements. The media crowned her Queen of the Net.

"CRAZY." Now, even though Meeker's reputation has cratered along with the stock prices of her beloved dot-coms, she refuses to change her tune. While former Net drumbeaters such as Lehman Brothers Inc.'s (LEH ) Holly Becker and Merrill Lynch & Co.'s (MER ) Henry Blodget have downgraded all of their pet stocks, Meeker has buy ratings not only on Yahoo but on a handful of other Internet walking wounded--including (PCLN ). "If I didn't think we're being crazy like foxes, I'd be in a bad place right now," she says.

Meeker figures she has been here before. Five years ago, in 1996, it was America Online Inc. (AOL ) that seemed to be on the ropes. The company's servers were crashing like kamikaze pilots, and analysts questioned its accounting practices. Most analysts abandoned AOL. Meeker recommended the stock--even after AOL revealed that it would write off $385 million for deferred marketing costs. "It was friggin' lonely," she recalls. But the crowd was wrong. AOL Time Warner Inc. has emerged a titan of American industry. If an investor took Meeker's advice on that day and bought 100 (split adjusted) AOL shares, that $160 investment would now be worth $4,300.

Meeker is betting that something like that could happen again. And she is working hard to prove it, doing everything from visiting institutional investors to working with industry people to fashion a promotional effort to highlight the positive aspects of the Net. "I feel a responsibility to this thing that I've played a role in creating," she says. "It's not in my DNA to punt." Last month, after Yahoo warned that its earnings might disappoint, Meeker stayed up all night writing a defense of the company based on its 30% growth in users.

Since January, with Meeker leading the charge, Morgan Stanley's team of a dozen tech analysts has put out a series of five reports sizing up the Net's prospects. Bottom line: Internet users worldwide should increase a healthy 25% per year for the next five years. Meeker's top picks are AOL Time Warner and Microsoft Corp. (MSFT ), but she urges investors to bet on a "basket" of stocks that includes online auction site eBay (EBAY ),, and Yahoo. They have captured the most eyeballs on the Web, and they have built brands as valuable as Pepsi and Kleenex, she argues. Ultimately, she says, dot-coms should be able to cash in on their vast audiences.

STIFF UPPER LIP. Meeker has been wrong before, though. Even when it became clear in 1999 that Net companies were frightfully overvalued, Meeker kept buys on most of the companies she covers. Priceline, for instance, topped out at 160 in April, 1999, and is now selling at 3. Nine of the 21 Net companies she has recommended are now trading (or were sold) below their IPO prices. While tech investors lost more than $2.5 trillion on paper, insiders say Meeker collected millions in bonuses. Her major error was not seeing that the tech correction she had predicted would wound the Web's biggies along with me-too dot-coms.

Critics say Meeker is emblematic of what's wrong with Wall Street. Morgan Stanley, like most major researchers, also handles public offerings for companies. "These analysts are hustling for underwriting fees, and yet they're supposed to be making objective calls for investors," says Jay Ritter, a finance professor at the University of Florida. "Meeker and others made bullish calls even when stock prices were unjustifiable. It goes down in history as an incredible embarrassment to the investment-banking industry." Meeker denies pandering to clients.

Will she be able to salvage her reputation? It seems unlikely that she will resume her reign as queen of anything in the near future. "You can be in the penalty box for a very long time," says Michael Kwatinetz, a former tech analyst at Credit Suisse First Boston who is now a venture capitalist.

Meeker, 41, is clearly anguished by her travails. One New York columnist even called her "demented." During interviews for this profile, she frequently launched into long, impassioned defenses of her stance on the Internet. Once, after a can of Coke fizzed over when she opened it, she joked edgily: "Even my soda's nervous." Still, she keeps a stiff upper lip. "She's not emotional. She doesn't cry," says her older brother, Dick Meeker.

She has invested a tremendous amount of energy in turning the Net into a very big thing. When Meeker landed in New York as a stock analyst in 1986, she fretted that she had missed out on the PC industry's go-go years. So she found her own revolution. In 1994, Netscape Communications Corp. turned the computing world upside-down with its Web browser. Overnight, Meeker became the Net's biggest advocate. "She said from the very beginning that the Web would be a mass medium and that people would pay for it," says Netscape co-founder Marc Andreessen.

Meeker put in 80-to-100-hour workweeks--a relentless schedule that required three personal assistants. All that hustling paid off. In 1996, Morgan's West Coast investment-banking team, lead by the legendary Frank Quattrone, quit as a group. Meeker took Quattrone's place as the firm's star player, thanks to her tireless networking with industry luminaries and her series of reports that sized up Net retailing and advertising businesses. "Mary's very opportunistic," says George Kelly, the firm's networking analyst. "She became the face of Morgan Stanley."

That's less true now. Meeker has been keeping her head down as she churns out her new Net reports. Reassured that growth is still strong, she thinks the Net is still in the early stages of adoption. She believes the ultimate e-commerce winners will be those that forge relationships with consumers yet leave inventory ownership to others.

Meeker is in a hurry to get this period behind her. But some people aren't ready to let Net analysts off the hook. "They haven't been properly punished," says a Wall Street headhunter. With the way the Nasdaq has been behaving, more punishment may be on the way.

By Steve Hamm in New York

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