(This article was originally published Thursday.)
By John Letzing
The Baron Opportunity Fund (BIOPX) has taken a somewhat unique
approach to the recent wave of Internet firms hitting the public
markets. Yes, it owns LinkedIn Corp. (LNKD), the well-known
professional network that has seen its stock rise sharply since its
IPO last year. But the fund also holds Bazaarvoice Inc. (BV), a
lesser-known service that has carved out an online-marketing
niche.
What the fund decidedly does not own: Facebook Inc. (FB) and
Zynga Inc. (ZNGA). Each has been a poster child for Web 2.0
generation of services with a social bent. And each, according to
Michael Lippert, who has been managing the Baron Opportunity fund
for more than six years now, is problematic.
While Facebook is often tied to LinkedIn as fellow online
network, Mr. Lippert notes that the two are distinct. LinkedIn
pulls in a significant amount of revenue from companies using its
recruiting services and listings, while Facebook is "much more akin
to Yahoo (YHOO)," he said, in reference to the embattled Web
veteran. "They get people to interact with content, and try to sell
ads."
Facebook has yet to sell ads at a pace pleasing to a large
audience of investors. The company went public in May, initially
priced at $38 a share, but has since seen its stock fall below $20.
Now, Mr. Lippert says, Facebook is faced with more lapsing
restrictions on insider sales and a likely batch of unflattering
media coverage.
If Facebook's stock falls much lower, however, Mr. Lippert says
he could get interested.
"If it's down in the teens, it may be worth owning for the long
term," Mr. Lippert said, noting the site's extensive repository of
knowledge about its nearly 1 billion users.
Social-game firm Zynga, however, appears to hold no appeal. "We
didn't think there was anything about social gaming that made it
very different from other types of games," Mr. Lippert said. Shares
of Zynga, priced at $10 in the firm's December IPO, now trade for
roughly $3 apiece.
Bazaarvoice, which went public in February, does present a
unique opportunity in social media, Mr. Lippert argues. That's
because it has been able to tie a number of large brands to its
service of presenting and analyzing opinions of the brands voiced
on websites, he says.
"It's sticky," Mr. Lippert said. "Once you're using them, you're
not going to switch." Shares of Bazaarvoice were priced at $12 at
the firm's IPO. They're now trading at more than $14.
LinkedIn, which Mr. Lippert says accounts for about 1% of his
portfolio, has seen its shares rise about 70% in the year to date
to trade at $109.
Mr. Lippert says his fund's philosophy is based on "trying to
identify the long-term growth niches," and placing bets on mostly
midcap companies with market values ranging from roughly $1 billion
to $15 billion.
The fund had about $360 million in assets under management. It
is up about 13.3% year-to-date, slightly behind the S&P 500
index's 13.7% return in the same period, according to Morningstar.
Over the past five years, the fund returned 5.5%, outpacing the
1.9% gain for the S&P 500.
Apple Inc. (AAPL), a significant holding for the fund, is
something of an outlier only in terms of size, Mr. Lippert says.
The iPhone and iPad maker's stock has risen nearly 20% in the past
three months, bringing its market value to more than $630
billion--more than the combined value of rivals Google Inc. (GOOG),
Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN).
Apple recently won a $1 billion jury verdict in a high-profile
patent-infringement trial with Samsung Electronics Co. (SSNLF). But
Mr. Lippert, a former patent attorney, says it's difficult to say
how much Apple will benefit from the verdict, which Samsung has
said it will seek to overturn.
"It sounds great, a billion dollars," Mr. Lippert said. But the
decision's impact on Google's Android software, which powers phones
that compete with the iPhone from Samsung and others, is unclear.
"It may slow things down a bit in the Android world," he said,
though the more important issue for Apple now is reaction to the
newest iteration of the iPhone, which is expected later this
year.
Mr. Lippert's fund isn't limited to consumer technology names
like Apple.
Other significant holdings include oil and gas services firm
Carbo Ceramics Inc. (CRR), filtration-membrane producer Polypore
International Inc. (PPO) and commercial real-estate-research firm
CoStar Group Inc. (CSGP).
Write to John Letzing at john.letzing@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires