Facebook surfing pays off for some investors

A senior equity analyst for Thrivent Financial in Minneapolis, Elsheshai had advised his firm not to buy Facebook Inc's initial public offering last year at $38 per share due to concerns that it was overpriced.

But Elsheshai, 44, continued to use Facebook in his personal time, and this spring he noticed advertisements from companies like eBay Inc and auto makers showing up on his "news feed," a centrally displayed part of the website.

After more quantitative research, he was convinced that Facebook was getting its advertising strategy in order. Elsheshai suggested to Thrivent it was time to buy the stock, advice that the faith-based firm followed in June. The $950 million Thrivent Large Cap Growth Portfolio bought 572,200 Facebook shares that month, according to Lipper data, a time when the stock was trading around $24.

Those bets looked prescient on July 24, when Facebook reported stronger-than-expected quarterly results and its shares shot up 40 percent in the following week to top $38 for the first time since the IPO. The shares closed at $38.54 on Thursday.

Thrivent's timely investment belie the challenges of investing in the world's largest social network.

Facebook's public offering was one of the most anticipated of 2012, but concerns about whether the company would be able to grow its mobile advertising business helped push down the stock to as low as $17.55 last September.

Kathryn Spica, a mutual fund analyst for Morningstar in Chicago, said valuing Facebook has been a common problem for many fund managers. As with other young Web companies, it has not been clear how well the young company could monetize the heavy traffic to its site.

"It's an unusual stock. It's hard for the industry to get a grasp of how they'll make revenue," she said.

Elsheshai described Facebook as opaque and said his own impressions as a user helped give him confidence to act against what was fairly bearish commentary at the time.

He said the negativity had appeared to be mainly anecdotal, such as stories of teenagers switching to other social media services, but that did not match his own experience or the data he saw.

"It seemed clear you were starting to see a broader set of advertisers" on the service, said Elsheshai, who is based in Minneapolis and has 462 Facebook "friends" at last count.

Another enthusiast for Facebook is Chris Carter, co-manager of the $549 million Buffalo Growth Fund, advised by Kornitzer Capital Management in Shawnee Mission, Kansas.

The Growth Fund had bought Facebook shares last year and added to the position this spring on Carter's suggestion. It now holds around 370,600 Facebook shares, up from about 300,000 at the end of February, according to Carter.

Carter, 34, said he was encouraged by Facebook's strength in advertising on mobile devices, where the ads stand out compared to those that appear on desktop machines.

Seeing ads on the Facebook app on his own iPhone 5 helped inform his decision, said Carter, who has about 175 Facebook friends. "If I hadn't seen that, I would be wondering what's up," he said.

Not every investor relied on his own experience with Facebook. Jay Welles, a senior equity analyst at Manning & Napier Inc in Fairport, New York, said he followed Internet tracking firms such as comScore, which continued to report growing traffic to Facebook.

Welles recommended his firm buy Facebook shares in the spring, and said it has not sold them since.

"We felt the user base was very sticky. Facebook had a lot of hooks into the users," said Welles, 35. He uses LinkedIn but not Facebook. "My own personal experience isn't the relevant factor," he said.

The $1.2 billion Manning & Napier Equity Series fund held 442,520 shares of Facebook at the end of July, up from 198,660 at the end of April, according to the firm's website.

© Thomson Reuters 2013