Tue, Nov 16, 2004 page12

• Internet analysts find glory again

  COMEBACK STORY Some of the analysts who fell from grace during the sector's bust are back, riding on the success of companies like Google and eBay

  • NY TIMES NEWS SERVICE
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  For the Internet analyst, happy days are here again. As the stock prices of companies like Google and eBay soared this year, two of the biggest cheerleaders on Wall Street, who four years ago were derided as false prophets too eager to put the commercial interests of their firms ahead of investors, are basking in a renewed glow.

  Mary Meeker of Morgan Stanley -- who was celebrated and then disparaged as the "queen of the Net" -- is once more out on the stump, extolling the commercial opportunities of the Internet, churning out comprehensive reports and using her still considerable sway to help land Wall Street's biggest investment banking deals -- like Google's public offering -- for her firm.

  Over at Goldman Sachs, Anthony Noto, who during the Internet boom became known for his aggressively optimistic research in support of now-bankrupt clients like eToys, Webvan and Planet Rx, was recently awarded perhaps the most coveted prize on Wall Street: a Goldman Sachs partnership. While it is too early to get a precise reading on what bonuses Meeker and Noto might receive for this year, some of their fellow analysts estimate that each will be paid US$3 million to US$5 million.

  That Meeker and Noto have again seen their careers prosper underlines how much Wall Street loves a second act, especially one that promises rich returns. Both analysts survived investigations by Attorney General Eliot Spitzer of New York into research abuses, because they held stubbornly true to their beliefs, even as their stocks plunged in value.

  That resilience is now paying off: The Internet stocks they follow are on the upswing, and the prospects for new investment banking deals have caused Noto's and Meeker's own stock to rise.

  Their resurgence also demonstrates how Wall Street still values the influence of equity analysts, even after a US$1.4 billion settlement growing out of federal and state investigations sought to seal them off from the banking business. Will Meeker and Noto be pitching deals to clients in Silicon Valley? Certainly not. Under the settlement's guidelines, research analysts are barred from soliciting investment banking deals or even discussing transactions with their banking colleagues.

  But there is no law that prevents analysts from developing relationships within companies, even those that their firms do business with. And in today's toned-down deal-making environment, investment bankers and analysts say, an analyst's influence can be implicitly leveraged by bankers without relying on the kind of crass quid pro quos that prevailed during the Internet bubble.

  "These people are still bankers in analysts' clothing," said Andy Kessler, an author of books on Wall Street and a former hedge fund manager who once worked with Meeker at Morgan Stanley.

  "This quid pro quo is now just a wink and a nod. If these guys were truly independent, you would see hold ratings after big deals. But with Google, all we have seen are across-the-board buys," he said.

  Meeker, who declined to be interviewed for this article, has a friendly relationship with the founders of Google. And although she had no active role in bringing Google's business to Morgan Stanley, her positive rating a few weeks after the offering is likely to have helped an already rising stock price.

  Noto has cultivated ties with perhaps the most influential investor in Internet and media stocks, Gordon Crawford of Capital Research and Management, who calls him "the most effective large-cap Internet analyst on Wall Street."
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