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Ryan Jacob, portfolio manager of the Jacob Internet Fund
Courtesy Jacob Asset Management
Remember Ryan Jacob? The investor had a brief moment in the spotlight when he started his
Jacob Internet
fund in late 1999. But shortly after the bubble burst in 2000, his fund fell to last among the more than 5,000 mutual funds tracked by Morningstar.
As the jeering died down, Jacob went back to work building his Los Angeles–based asset-management firm. More than 20 years later, he’s still at it. The fund (ticker: JAMFX) soared 123{51a8f47ed26b62794f5b3aaed8601076d65294f6278e23b79b91f33f521836ea} last year and is up nearly 40{51a8f47ed26b62794f5b3aaed8601076d65294f6278e23b79b91f33f521836ea} in 2021.
Jacob, a soft-spoken Drexel University grad with a distinct Philadelphia accent (takes one to know one), shuns most megacaps and takes a bottom-up approach to finding growing businesses with strong network effects. The resulting portfolio includes an eclectic mix of microcaps.
Jacob notes that his fund underperformed in 2019, as megacaps dominated tech’s growth. But his disdain for large-caps has generally worked, with the fund returning an annual average of 23{51a8f47ed26b62794f5b3aaed8601076d65294f6278e23b79b91f33f521836ea} over the past decade—without a losing year since 2011.
As of Dec. 31, the fund’s largest position was
Digital Turbine
(APPS), a longtime holding that’s more than 9{51a8f47ed26b62794f5b3aaed8601076d65294f6278e23b79b91f33f521836ea} of the portfolio. The Austin, Texas–based company handles app installation for non-Apple devices, working with phone makers—in particular Samsung—and carriers, including
Verizon
Communications,
AT&T,
and
Telefónica.
Shares of Digital Turbine have gone from $6 to $86 over the past 12 months. While the fund’s cost is under $2, Jacob sees further gains for the stock. “There was a lot of sputtering before the flywheel started to go,” he says. “But growth and margins are accelerating. Just because something is up a lot doesn’t mean it’s overvalued.” He thinks Wall Street estimates are too low.
Jacob thinks that
OptimizeRx
(OPRX)—another of his top-five holdings—could be this year’s Digital Turbine. The Rochester, Minn.–based company runs a communications platform that sits between health providers and patients. It uses ads, coupons, messaging, and loyalty cards to drive patient compliance with prescriptions.
Jacob says OptimizeRx could be a good acquisition target, especially for
GoodRx
(GDRX), which focuses on a related market, giving consumers information on how to buy prescription drugs more inexpensively.
Another obscure pick from Jacob is
SharpSpring
(SHSP), a Gainesville, Fla., marketing-software company with a value under $300 million. Jacob describes the company as “like
HubSpot
[HUBS] at a fraction of the valuation.” He says HubSpot’s software has more features, but at a much higher cost. Based on a multiple of sales, SharpSpring trades at half the value of HubSpot. “Marketing automation is hot,” he says. “I’m surprised no one has tried to buy them.”
One contributor to the fund’s run this year is
Voyager Digital
(VYGVF), a New York–based, Canadian-listed cryptocurrency exchange. Among other things, Voyager makes a market in the oddball Bitcoin rival called Dogecoin, which has recently run up from a penny a share to eight cents. Voyager itself is now worth over $2 billion, up 240{51a8f47ed26b62794f5b3aaed8601076d65294f6278e23b79b91f33f521836ea} in 2021. Jacob has taken some profits, but he thinks the stock could still get more attention—and rally further—when better-known rival Coinbase goes public later this year.
Not all of Jacob’s stocks are obscure. He has a big bet on
Zillow
(Z), which ran up more than 25{51a8f47ed26b62794f5b3aaed8601076d65294f6278e23b79b91f33f521836ea} last week on strong fourth-quarter results. Jacob notes that the online real estate firm is benefiting from low interest rates and a home-buying boost from the work-from-anywhere trend. He’s particularly bullish on Zillow’s iBuyer business, which flips homes for its own account. Zillow expects revenue from that business to double in the current quarter, but Jacob thinks the opportunity could be even greater once housing supply improves.
Other more familiar bets from Jacob include
Twilio
(TWLO), the provider of communications services to many online businesses; database company
MongoDB
(MDB); and online-payments firm
Square
(SQ). And he’s bullish on
Twitter
(TWTR), which he says remains undermonetized. “The challenge has been, what does the financial model look like?” he says. “They have to start proving out monetization, and we’re starting to see good ideas on that front.”
In my Dec. 28 column, I shared a pair of stock picks from Jeffrey Meyers, founder of Cobia Capital, a New York–based hedge fund with its own focus on obscure tech stocks. So far, both picks have worked well.
Nordic Semiconductor
(NDO.Norway), a specialist in Bluetooth chips, has rallied on better-than-expected fourth-quarter results. “Forward revenue growth would be even higher except for the tight semiconductor-supply situation that is gripping the industry,” Meyers says. The stock is up 37{51a8f47ed26b62794f5b3aaed8601076d65294f6278e23b79b91f33f521836ea} since my column ran, but Meyers thinks that it can still double from here.
Meyers’ other pick, antenna maker
AirGain
(AIRG), has rallied 72{51a8f47ed26b62794f5b3aaed8601076d65294f6278e23b79b91f33f521836ea}. Its antennas are helping to strengthen signals for AT&T’s FirstNet, a communications network for first responders. Meyers sees a $500 million market opportunity—for a company with annual revenue of around $50 million.
I followed up with Meyers this past week and asked for another pick. His choice:
Silicom
(SILC), an Israeli company that makes specialized devices for telecom networks. Silicom benefits from the growth in software-defined networks, and Meyers says it “has a huge opportunity” in 5G network buildouts.
He notes that Silicom trades for just 2.4 times estimated 2022 sales and under 20 times 2022 projected earnings. He thinks that the stock could double in 12 months—and quadruple over the next four years.
Write to Eric J. Savitz at [email protected]
