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Monday, July 11, 2005


Google's Price Target Taboo
Kevin Kelleher
Google's Price Target Taboo
By Kevin Kelleher
TheStreet.com Senior Writer
7/11/2005 7:04 AM EDT
URL: http://www.thestreet.com/tech/kevinkelleher/10231533.html

Like the greats of baseball, former stock analyst Henry Blodget will forever be associated with a number that has nothing to do with a uniform. DiMaggio: 56. Ruth: 60. Aaron: 755.

Blodget: 400.

Unlike those greats, however, Blodget's number -- the price target he infamously put on Amazon.com (AMZN:Nasdaq) in December 1998 -- carries a tinge of notoriety, an asterisk that bursts like a firecracker into a larger, less triumphant story. Blodget's bold call inaugurated an era of the stock market that many investors have since labored to rub out of their memories: His $400 price target smashed a champagne bottle on the ill-fated S.S. Dot-Com Bubble.

Six and a half years on, "Blodget 400" not only remains a lively piece of market lore, it's getting hard to avoid. That's because another fast-charging technology upstart named Google (GOOG:Nasdaq) sits on the precipice of breaking above the $300 barrier for the second time in a month and, if its profit keeps growing at the recent breakneck pace, seems determined to reach $400.

And that presents an unusual quandary for research analysts. Tracking the trajectory of Google's burgeoning financials, analysts have ratcheted up their price targets on the stock to $300, then $330, then $350 and, most recently, $360. After all, Google's $704 million profit in the past 12 months was up 390% from the previous 12-month period.

But even though Google has repeatedly blown away the Street's numbers, analysts are still very much self-conscious about their price targets.

Who can blame them? Who wants to be the first to declare that Google will hit -- dare it be said -- $400?

Which is kind of ironic, because back in 1998, Blodget said he was boldly putting "my money where my mouth is" in a "hypocritical stock market." The $400 target was meant, according to Blodget, as a blow for truth.

And it came true -- in a self-fulfilling kind of way. Amazon.com was trading at $243 when Blodget put his $400 target on the stock in December 1998. It quickly hit that target two months later, but after the tech bubble burst it fell back below it -- actually, it fell 92% to $5.51. Six years later, Amazon is profitable but still trading at half Blodget's $400 target: Factoring out the intervening splits, the stock stands at $204.

Still, the call won Blodget a job at Merrill Lynch and turned him into one of the most prominent Internet analysts during the bull market. Then Blodget was caught striking a blow not to achieve truth, but directly on it.

Amazon, it turned out, was among his more sensible calls. But his private emails referred to some Internet stocks -- ones rated as buys in his reports -- as "junk" and, even worse, by scatological labels. Those emails found their way into the hands of regulators.

Blodget settled, admitting no guilt but accepting a lifetime banishment from Wall Street and agreeing never, ever again to be paid for personal investment advice -- which, really, is in its way a kind of admission.

Like Michael Milken, Blodget has managed to reinvent himself. Only unlike Milken the humanitarian, we have Blodget the part-time financial journalist, who has been published in Slate.com and Fortune magazine. (The question this raises -- in moving from disgraced stock analyst to financial journalist, did Blodget trade up or trade down? -- is one I'm happy to steer away from here.)

If you weren't burned by his wild-eyed stock recommendations, it's easy to feel just a little bit sorry for Henry Blodget. He stands out starkly from his pillory mates -- he lacks Frank Quattrone's flashes of combative arrogance and the dark cunning of Jack Grubman. Instead, he comes across as a nice guy who could neither fight nor escape a rigged system.

But wrongdoing is wrongdoing, and Blodget is now stuck with the rest of us who sling words like 99-cent burgers. Only he's hobbled by his promise to not offer any individual investment advice.

Yet sometimes Blodget the analyst haunts his Slate columns, as when he discusses Chinese stocks ("still miles from cheap") or Google's IPO ("those interested in Wall Street self-defense shouldn't play it").

OK, so his advice on Google's IPO wasn't so hot. But recently, Blodget had a chance to revisit the question of Google's valuation in a story for Fortune. It's kind of a painful read. He doesn't want to be accused of giving advice, but he's called on to write 2,200 words on Google's stock. The result is tortured prose: "I would respectfully suggest that we are sounder of mind in the midst of bubbles than we like to think -- just as we are sane to consider buying Google at $290 or a house in today's frenzied real estate market."

What a rotten fate. Now that there is finally an Internet stock that may soon be reasonably valued at $400 a share, Mr. 400 will have to watch from the dugout bench.
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