Holly’s Nine Lives: Lehman’s Internet Analyst Rises Above the Bust

It’s another down day for Internet stocks, and Lehman Brothers’

star Internet analyst Holly Becker is hard at work in her spare corner office

at 3 World Financial Center. Her screens flash a blinking red before her: Yahoo

down 5 percent, eBay down 7 percent, Amazon minus 3 percent, AOL down, too. Ms.

Becker’s face remains coolly placid; her voice, conference-call honed and a

little high, registers no emotion as she goes through her paces on her first

client call of the day.

“I’ve never seen AOL senior management so confident. They

really feel that they are not feeling the pressure,” she says into her speaker

phone. “They are just better positioned with advertisers.”

“And you really believe they are that confident?” There is

the slightest hint of a quaver in the portfolio manager’s voice-a touch of the nerves, perhaps. This is Holly

Becker on the phone, after all, the now-famous slayer of the likes of Yahoo and

eBay; God forbid she turns on AOL.

“I just believe they are

going to make their numbers. The stock is down a lot already. I’m dealing with

stocks like Amazon, eBay and Yahoo that have absolutely no valuation support if

something goes wrong.”

Ms. Becker’s impatience is beginning to show a bit: Her head

is in her hands, she is rubbing her eyes-it has been 10 minutes or so on the

call, more than her increasingly hectic schedule can allow. It’s time to wrap

it up.

“Look, it comes down to this: For AOL–Time Warner, 5 percent

of sales come from online advertising; for Yahoo, that number is 90 percent

from online. AOL is just less vulnerable to an online advertising slowdown.

It’s the only Internet stock I’m recommending now.”

The client seems reassured, eager to agree. “Right, right,”

he stumbles over his words. “Yeah, yeah.” Whew! Holly likes AOL. Maybe that

rapidly dimming Internet sun would shine again some day.

This is Holly Becker’s moment. And what a moment it has

been. Six months ago, she was just another well-respected, well-paid sell-side

analyst, plying her trade in relative obscurity at Lehman Brothers. Then, on

June 21, having worked the numbers and come up with some disturbing findings,

she became the first front-line Internet analyst to issue a neutral rating

(Wall Street code for “sell”) for Internet bellwether Yahoo, then trading at

$142.

Shock! Horror! A neutral on Yahoo? The Street couldn’t

believe it. Spit on Pets.com or even Priceline, but Yahoo was the standard

bearer, the bluest of the Internet blue chips-especially after Amazon’s fall

from grace. The shorts jumped on her call, and Yahoo plummeted 16 percent

before the week was mercifully done. Today, it stumbles along at a mere $31.

For Ms. Becker, it was a Zeitgeist -defining call. Just as

Merrill Lynch’s Henry Blodget (once an equally obscure analyst at CIBC

Oppenheimer) presaged the market’s euphoric Internet boom in late 1998 with his

prediction that Amazon would double in price, Ms. Becker’s well-researched

swipe at Yahoo captured an evolving market mood that had yet to be fully

articulated: namely, that all (not

just some) Internet stocks were overvalued.

But she wasn’t done yet. A month later, she downgraded

Amazon with some prejudice ( Throwing in

the Towel at Amazon , her report read), and on Nov. 20, her coup de grâce : a downgrade of eBay.

Amazon is down 34 percent since; eBay, on the day she downgraded it, went down

15 percent. Now the phone calls are flooding in (she had 150 from the press,

clients and irate individual investors the day she downgraded eBay), she is a

popular CNBC guest and the New York Post

runs her photo regularly.

With the echo of the

Internet bubble’s pop still ringing in investors’ ears, the hip calls are now

the bearish ones. Internet bulls such as Morgan Stanley’s Mary Meeker and Mr.

Blodget seem to be yesterday’s news.

It’s prime time for Holly Becker. But is she ready?

“Every single one of those calls, they all make me nervous.

On every one, I’m alone,” Ms. Becker says with a whoosh of nervous laughter. “I

mean, I ask myself: ‘What do I know?’ Every day I look at my screen, and Yahoo

is still going down. So I think: ‘Is it time to upgrade?’-because I don’t want

to miss it on the upside. It’s nerve-wracking.”

The 34-year-old Ms. Becker certainly looks ready for prime

time. Her hair is long, black and luxurious; her dark skin seems to carry over

a summer tan; her sparkly smile is magazine-cover ready. She is not just a pretty

face, either. A product of Chicago’s North Shore, she got A’s at the University

of Illinois and cruised through the London School of Economics and Harvard

Business School.

After a brief stint at McKinsey & Co., she hit Wall

Street for good in 1994, starting out at Smith Barney as a consumer-goods

analyst and covering big-name stocks such as Procter & Gamble, Avon and

Gillette. She later became an e-commerce analyst, picking up coverage of the

likes of Amazon and eBay. Things looked good, but they got even better when

Lehman Brothers called last March. Did she want to make the move over and

become the company’s No. 1 Internet analyst?

You bet she did. The split from Smith Barney, however, was a

nasty one. “It got ugly,” she says. “I would never do it again; they said, ‘We

hired you when you were 27.’ I said, ‘Hey, I gave you an Institutional Investor ranking.’ Lawyers got involved; it was not a

pretty scene.”

By the spring, she was up and running at Lehman but was

still, for the most part, an unknown. She started with a buy on Amazon in May

(“That was a mistake,” she admits) and then shifted her attention to Yahoo.

It may seem hard to believe now, amidst all the wreckage,

but the consensus last spring was that companies like Yahoo and eBay, given

their strong brands and market share, would survive any fallout from a meltdown

in Internet stocks. Especially Yahoo: It was a magnet for dot-com advertising,

which at the time was in a powerful growth mode. At $142, Yahoo was trading at

a nosebleed price-earnings ratio of almost 300.

Ms. Becker’s feeling was that Yahoo’s explosive revenue

growth-driven largely by dot-com ad buying-was going to taper off as cash

became more scarce in dot-comland. But then she took the extra step and polled

60 major advertisers to get a sense as to whether they would pick up the slack.

Most said no. Conclusion: Revenue

growth was going to slow in coming quarters, and the company’s vertigo-inducing

P-E ratio was at risk.

Down came the ax. Her

timing could not have been better. At 142, Yahoo was off its high of 240, and

the investment community was getting a bit leery about Net stocks; indeed,

investors were looking for an excuse to sell. And so Ms. Becker obliged.

“In hindsight, yes, my timing was lucky,” she concedes. “But

remember-at the time, the call was controversial. The stock was already down;

the inclination was to say, ‘This is a high-quality company ready to rebound.’”

Portfolio managers lauded her efforts. “That was a great

piece of research,” said one. “She deserves a lot of credit for it. The real

key, though, will be when she tells us when to buy stocks. For now, though, I’m

reading her research before Mary and Henry’s. She moves markets more than they

do.”

Says Mr. Blodget (who himself just downgraded his Yahoo

revenue estimates last week, further sustaining the stock’s downward spiral):

“Holly made a great call. I take my hat off to her. I wish I had made such a

call.”

Insiders say Mr. Blodget makes about $10 million a year for

his calls, Ms. Meeker a reported $15 million. Ms. Becker would not comment on

how much her bonus will yield her this year (probably substantially less than

her higher-profile colleagues), but it’s likely to be healthy.

Pretty heady stuff for Ms. Becker, who was recently married

(her husband manages money for a hedge fund) and is now five months pregnant.

You wouldn’t know it by looking at her, though. An ardent spinner, she remains

slim and petite. Indeed, before her pregnancy she would regularly attend three

consecutive hourlong spinning sessions-on Saturday and Sunday mornings-at the

Zone, a high-end gym near her weekend house in East Hampton.

But her life has changed in other ways. These days, she is

on the road visiting clients as many as 12 business days a month. During the

week in New York, she usually has several business dinners. She lives in a high

rise on 66th Street and Amsterdam Avenue, a short hop from the No. 1 or 9 train

that gets her into the office at 7:15 a.m. for the morning research call.

Still, she has to admit, the buzz must feel good, no? Isn’t

it cool to have old high- school chums calling up and saying “Holly! I saw you

on TV while I was working out”? Or to have chief executives of the old

companies you covered sending warm notes saying: “We are so proud of you”? (To

say nothing of the scrapbook her mother keeps.)

“I don’t love that part of it,” Ms. Becker said. “You know,

I was a pretty visible analyst before, but it’s different now. No one likes to

be in the limelight. It’s not fun; it makes you insecure; there is always

someone who wants to criticize you.” Dealing with the press is tricky, too. The

two times she has spoken in depth with reporters, she says, she has been

burned-once in The New York Times

and, more recently, in an article in Business

Week , in which she is quoted as saying that a colleague of hers covering

Amazon had “no insight into the company’s strategy.” “I never even said those

words,” she insists. “Maybe I’m wrong, but I just trust that people are not out

to get me.”

For someone who gets 15 calls a day from the press (she does

not pick up her phone, leaving that responsibility to her assistant and her

four junior analysts), Ms. Becker is surprisingly unschooled in the fine art of

spin.

“You promise you are going to be nice to me?” she frequently

asked The Observer during her

interview.

Perhaps it’s because, even with all the trappings, Ms.

Becker has still not fully embraced her Moment. “I worry every day that my

calls are going to be wrong. I second-guess everything I do …. I’m totally

insecure about every call; I’m always worried about it. The night before a big

call, I don’t sleep the whole night. It’s one thing to be positive and wrong;

but if you are negative and wrong on your sector-after a while, you get fired.”