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Blodget reccommends buying AOL, Yahoo, eBay

NEW YORK, Jan 30 (Reuters) - A leading analyst on Tuesday recommended buying stocks such as AOL Time Warner Inc. (NYSE:AOL - news), Yahoo Inc. (NasdaqNM:YHOO - news) and Amazon.com Inc. (NasdaqNM:AMZN - news), saying the Internet industry has passed its low point, even if it still faces one or two rough quarters.

Merrill Lynch's Henry Blodget, who made his name as an early Internet bull when he set a $400 target for Amazon.com stock in 1998, also recommended building positions in online auctioneer eBay Inc. (NasdaqNM:EBAY - news), online advertiser DoubleClick Inc. (NasdaqNM:DCLK - news), mobile Internet company Openwave Systems Inc. (NasdaqNM:OPWV - news) and Homestore.com Inc. (NasdaqNM:HOMS - news)

In a research note to investors titled"Internet

Not a Hallucination", Blodget said he thinks the sector has already passed its bottom.

However, he cautioned that the ``effects of the dot-com bubble revenue 'incest,' peer pressure, a supply and demand imbalance and complacent salespeople'' will continue to disrupt growth for another one to two quarters.

Internet stocks have had a tough couple of quarters as demands for profitability from Wall Street have caused many companies to cut jobs and reevaluate business models. The climate has become even more challenging for some of the companies as ad spending has declined and the economy shows signs of slowing.

Advertising and e-commerce fundamentals will remain weak for at least two quarters but the weakness is already in the models and stock prices of the leading companies in the sector, Blodget said. After that, pricing power should increase and competition should decrease, he added.

The online ad industry has become complacent after only having to ``answer the phone'' as companies rushed to advertise in recent years, he said. Now it has to cut pricing and innovate to prove the return on investment for advertisers.

With more than 50 percent of the U.S. market and 80 percent of disposable income already online, Blodget said the Internet sector has to focus on opportunities abroad for new users.

AMERICA ONLINE RESULTS

Blodget's note came the day before AOL Time Warner's first quarterly results since the world's biggest media company was created in a $106.2 billion merger was completed earlier in January.

Blodget said AOL, which has already announced job cuts, could announce major cross-marketing deals and a price increase for its flagship Internet service to coincide with the results.

While AOL is insulated from the ad slowdown, Blodget cautioned that the company was not immune to it. Nevertheless, he expects the company to reach its targets of generating $40 billion of revenues in the first quarter.

He added that there is some near-term upside in eBay through the first quarter, its strongest seasonally.

For Internet media giant Yahoo, whose stock has fallen more than 80 percent since the beginning of 2000 amid the slowdown in advertising and shakeout in the Internet sector, Blodget said he believes the worst is over and its international efforts and dominance of the workplace market are advantages over AOL.

If Yahoo makes it through the ``AOL period'' and adds more management, diversifies revenue and gets creative, Blodget said he thinks the stock could go back to $75 by the end of 2001. If it doesn't survive, Blodget sees Yahoo's stock falling.

Shares of AOL closed off 69 cents at $54.31; shares of Yahoo closed down 3/16 at $39-11/16; shares of eBay closed up 7/8 at $53-3/16; shares of Amazon.com closed off nearly six percent, or $1-3/16, at $18-15/16 ahead of their quarterly results. Homestore.com shares closed down $1-13/16 at $30-1/16 and DoubleClick shares shares closed down 1/16 at $16-3/4.



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