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Why Warren Buffett’s $570 million bet on Snowflake is rarer than any unicorn | Markets – Business Insider

  • Warren Buffett’s Berkshire Hathaway plans to invest about $570 million into Snowflake when the cloud-data platform goes public.
  • Berkshire is set to buy about 7 million to 7.4 million shares, giving it a roughly 2.5% stake.
  • The bet is striking because Buffett famously sticks to businesses he understands, and has blasted IPOs as being poor value for money.
  • “We like to buy things where nobody’s making a dime selling them to us,” Buffett said in an interview last year.
  • Visit Business Insider’s homepage for more stories.

Warren Buffett’s Berkshire Hathaway is set to invest roughly $570 million into Snowflake when the cloud-data platform goes public at a potential $24 billion valuation in the coming weeks.

The famed investor’s company participating in an initial public offering by a “unicorn” — a private startup valued at over $1 billion — might just be a rarer sight than a horned horse.Advertisement


Catching snowflakes

Berkshire has signed up to buy $250 million worth of Snowflake’s stock in a private placement. It has also agreed to purchase 4 million shares from former Snowflake CEO Robert Muglia at the IPO price.

Snowflake expects to price its shares between $75 and $85. As a result, Berkshire is set to shell out between $550 million and $590 million for roughly 7 million to 7.4 million shares.

Berkshire’s shares are likely to give it a 2.5% to 2.6% stake in the

software

group, which is targeting a valuation of $20.9 billion to $23.7 billion — more than 78 times its revenue last fiscal year.

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Read more: US Investing Championship contender Oliver Kell raked in a 359.4% return through July. Here’s the strategy he’s using to crush the competition — and 3 stocks he’s holding right now.

Avoiding technology

Berkshire’s bet on Snowflake is surprising because Buffett has avoided technology stocks for most of his career. The investor has historically preferred to stay within his “circle of competence” and invest in companies he understands.
One of Buffett’s deputies, Todd Combs, is likely behind the Snowflake investment as his signature is in the IPO filing. However, it’s still a jarring departure for Berkshire to back a

tech

company that lost close to $350 million last fiscal year.Advertisement


Berkshire’s stable of businesses is dominated by steady, reliable businesses such as utilities, manufacturers, retailers, and insurers. Similarly, the biggest holdings in its stock portfolio are relatively staid companies such as American Express, Coca-Cola, Bank of America, and Kraft Heinz.

The glaring exception is Apple, the most valuable holding in Berkshire’s portfolio. However, Berkshire only invested a few years ago, and Buffett views the iPhone maker more as a consumer-products company than a tech firm.

‘They don’t even call us’

Buffett and his business partner, Charlie Munger, have avoided IPOs and warned investors against participating in them for a long time.Advertisement


“In 54 years I don’t think Berkshire’s ever bought a new issue,” Buffett said in a CNBC interview last year. The sole exception is StoneCo, a Brazilian digital-payments group that Berkshire backed when it went public in 2018.

Buffett highlighted the hype around IPOs, and the strong incentives to drive up their price, as compelling reasons to stay away.

“How can it be the best single thing to use your money for in a given day [when] everybody in the world is pushing it?” Buffett asked. “It just doesn’t make any sense.”Advertisement


Read more: GOLDMAN SACHS: Buy these 19 stocks right now for big future gains once a COVID-19 vaccine is available

“We like to buy things where nobody’s making a dime selling them to us,” he added.

Buffett also pointed out at Berkshire’s 2004 annual meeting that the timing of IPOs tends to favor the company, not its new investors.Advertisement


“The seller decides when to come to market in most cases,” he said. “They don’t pick a time necessarily that’s good for you.”

Buffett said in another interview last year that valuation was a major concern for him.
“I certainly wouldn’t buy a business for $25 billion,” Buffett said, adding that it would have to earn $2.5 billion to $3 billion in pre-tax income in five years “to even be on the same radar screen as things you can buy now.”Advertisement


The investor also dismissed the idea that avoiding IPOs means missing out on future stars such as Amazon and Google, as he argued most of them turn out to be duds.

“You can go around making dumb bets and win,” he said. “It’s not something you want to take as a lifetime policy, though.”

Berkshire’s reputation for eschewing IPOs has led to companies not even bothering to contact Berkshire before going public.Advertisement


“They don’t even call us,” Munger said in the CNBC interview.

Read more: ‘I had run $5,000 up to $140,000 in just 2 years’: Here are the 7 trading rules stock-market wizard Marty Schwartz leverages to help ensure success

A shift in stance

Given Buffett’s historical aversion to tech companies and IPOs, it’s deeply surprising that his company is buying into an loss-making software business at a sky-high valuation.Advertisement


The best explanation may be that Buffett trusts Combs’ judgement, especially as $570 million isn’t too large a bet for a company with a roughly $200 billion stock portfolio and close to $150 billion in cash at the last count.

The Snowflake investment is also the latest sign that Berkshire is revamping its strategy and seeking out new types of investments.

For example, it bought shares in a gold miner for the first time last quarter, disclosed 5% stakes in Japan’s five biggest trading companies just over a week ago, and slashed its Wells Fargo stake to a 17-year low last week.Advertisement


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Warren Buffett’s Berkshire Hathaway makes big bets on Japan – CNN

Hong Kong (CNN Business)Warren Buffett is ushering in his nineties with big bets on Japan.

Berkshire Hathaway (BRKA), the American billionaire’s industrial and insurance conglomerate, on Sunday announced that it has purchased stakes in Japan’s five leading trading companies. The stakes are worth roughly 5% each, and have a combined value of $6.7 billion based on the companies’ share prices Monday.
The five firms — Itochu (ITOCF), Marubeni (MARUY), Mitsubishi (MBFJF), Mitsui (MITSY) and Sumitomo (CMTDF) — are known as “sogo shosha,” or “general trading companies,” in Japan. They play a vital role in the country’s economy, dealing in a wide range of industries, including energy, technology and manufacturing.
“I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment,” Buffett said in a statement, noting that the firms have worldwide business partnerships. “I hope that in the future there may be opportunities of mutual benefit.”
Berkshire said that it bought the holdings over the last year through regular purchases on the Tokyo Stock Exchange.
Japanese companies have not always welcomed foreign direct investment and some, such as New York hedge fund Third Point’s stake in Sony, have turned contentious. But Buffett is a household name in Japan and books about his legendary investment style have been mainstays in Japanese bookstores for years.
The companies’ stocks surged on the news, popping between 4% and 10% in Japan. The benchmark Nikkei 225 (N225) surged more than 1% as of Monday afternoon.
Berkshire said it intends to hold onto the investments for the long haul, adding that it may increase the size of its holdings to as much as 9.9%.
The stakes are among Berkshire’s most notable inroads in Asia. It also has a major stake in BYD (BYDDF), the largest electric vehicle maker in China.
It’s also a sign of how Berkshire may be trying to hedge against a weak US dollar, according to Stephen Innes, chief global market strategist for AxiCorp, a Sydney-based financial services firm.
Innes pointed out that Berkshire earlier this month revealed that it had bought a stake in Barrick (GOLD), a Canadian gold mining firm that is one of the world’s most valuable. Gold prices have benefited from the US dollar’s weakness this year, rising to all-time highs.
As the world continues to work toward recovery from Covid-19, Innes said, the Japanese trading houses that Berkshire is now investing in “will be a hot commodity,” as they deal in the trading of resources.
“They will be the conduits to stoke Japan’s economic engines,” he added.
— Kaori Enjoji contributed to this report.

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Warren Buffett’s Berkshire Hathaway grew profits by 86% last quarter as its stock portfolio soared in value – Business Insider

Warren BuffettMario Anzuoni/Reuters

  • Warren Buffett’s Berkshire Hathaway suffered an 11% drop in revenue in the second quarter, but almost $30 billion in year-on-year investment gains meant its net income surged 86% to $26.3 billion.
  • The famed investor’s conglomerate reported about $13 billion in net stock sales last quarter, including its disposal of the “big four” airline stocks in April.
  • Berkshire also repurchased more than $5 billion of its stock as expected.
  • However, its cash pile still ballooned by about $10 billion to $147 billion.
  • Visit Business Insider’s homepage for more stories.

Warren Buffett’s Berkshire Hathaway reported a surge in profits in the second quarter as the soaring value of its stock portfolio offset weakness across much of its business due to the coronavirus pandemic.

The famed investor’s conglomerate also sold more than just the “big four” airline stocks last quarter, and added about $10 billion to its enormous cash pile.

Berkshire reported an 11% slump in revenues to about $57 billion as sales dropped in both the “insurance and other” and “railroad, utilities and energy” divisions. It also stomached an impairment charge of roughly $10 billion tied its acquisition of Precision Castparts in 2016.

Read more: ‘The most extreme valuations in history’: A notorious market bear says investors should brace for record-low negative returns over the next 12 years — and warns that today’s exuberance implies a 66% plunge

“The government and private sector responses to contain its spread began to significantly affect our operating businesses in March and adversely affected nearly all of our operations in the second quarter,” Buffett and his team wrote in the earnings release.

However, those declines were offset by close to $30 billion in year-on-year investment gains, meaning Berkshire’s net income soared 86% to $26.3 billion.

Selling stocks and buying Berkshire

Berkshire reported $12.8 billion in net stock sales last quarter, including the $6.1 billion it received from selling the “big four” airline stocks in April.

The conglomerate will publish its portfolio as of June 30 in a regulatory filing next week, detailing exactly which positions it sold down or exited.

As predicted, Buffett also repurchased more than $5 billion of Berkshire stock last quarter, a big step up from his $1.6 billion in buybacks during the first quarter.

However, his company’s cash pile still grew by about $10 billion to $147 billion, after ballooning by around $9 billion in the first quarter.

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Buffett was widely expected to put Berkshire’s cash to work during the coronavirus crash earlier this year. However, the 89-year-old investor highlighted a lack of attractive opportunities at Berkshire’s annual meeting in May, as the Federal Reserve and US Treasury moved quickly to pump liquidity into markets and bail out struggling companies.

His inactivity spurred commentators to dismiss him as too old, too scared, and in need of a new strategy.

However, Buffett has been more lively in recent weeks. For example, Berkshire struck a $10 billion deal to buy most of Dominion Energy’s natural-gas assets in early July.

Moreover, he spent more than $2 billion buying Bank of America stock over 12 consecutive trading days to August 4, boosting Berkshire’s stake in the bank to almost 12%.

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Is This Warren Buffett’s Favorite Stock Right Now? – Motley Fool

The famed investor’s Berkshire Hathaway has spent billions buying this stock over the last two quarters — more than it has spent buying shares of any other company.

Warren Buffett, CEO and chairman of Berkshire Hathaway (NYSE:BRK.B)(NYSE:BRK.A), is one the greatest investors of all time. His ability to pick stocks and identify undervalued subsidiaries for Berkshire to acquire has helped the company’s stock price grow at an average rate of about a 20% annualized since 1965 — approximately doubling the S&P 500‘s annualized return over the same timeframe. No wonder investors watch closely when the famed investor makes a move.

While we won’t have the full details on Buffett’s recent purchases until the company releases its 13-F filing this week, one thing is clear: Berkshire Hathaway itself is among Buffett’s favorite stocks to buy lately — and it may even be his top pick.

Warren Buffett at a Berkshire annual shareholder meeting

Warren Buffett. Image source: The Motley Fool.

Spending billions on Berkshire stock

While Berkshire hasn’t revealed all of its stock purchases in Q1 yet, the company did provide an update on its share repurchases in its recently filed quarterly report.  The conglomerate bought back around $1.58 billion worth of its own stock during the quarter. This is a sizable purchase relative to the company’s total purchases during the period. In total, Buffett spent about $4 billion buying stocks in Q1. This means Berkshire represented about 40% of all equities purchases during the period.

Driving home just how much more attractive Berkshire is finding its own stock to buy than other stocks, Berkshire was by far the company’s largest stock purchase in Q4 as well. During the period, Berkshire spent $2.2 billion buying back its own stock — greater than all of its other stock purchases combined during the quarter. Further, this put total repurchases in 2019 at about $5 billion — up from just over $1 billion in 2018.

To be clear, it’s possible that Berkshire spent more than $1.58 billion on a different stock besides Berkshire during Q1. But it’s unlikely given that Berkshire only spent $4 billion total buying securities. However, when you consider this purchase with the $2.2 billion Berkshire spent on repurchases in Q1, Berkshire does seem to be Warren Buffett’s favorite stock as of late.

Berkshire shares appear to be undervalued

What’s notable about Berkshire’s share repurchases is that they actually mean something. Unlike many companies that buy back shares no matter where the stock is trading, it’s Buffett’s policy to only buy back shares when he believes they are meaningfully undervalued. The fact that Berkshire has been a top stock purchase recently speaks volumes about Buffett’s view of Berkshire stock.

To this end, the price-to-book value of Berkshire stock is significantly lower than it has been in years. In fact, the last time Berkshire had a price to book value ratio below 1.2 was the beginning of 2013. Today, Berkshire has a price-to-book ratio of about 1.1.

While this ratio offers only one view of Berkshire’s stock, the main remains: Buffett clearly sees meaningful value in his own company’s stock. In fact, his purchase history over the last two quarters implies it may be the famed investor’s favorite stock.


Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Warren Buffett’s company Berkshire Hathaway sells US airline shares – BBC News

A screenshot of Warren Buffett speaking at the shareholders' meeting

Image copyright
Reuters

Image caption

Warren Buffett made the announcement at the firm’s virtual annual shareholders’ meeting

Billionaire investor Warren Buffett says his company Berkshire Hathaway has sold all of its shares in the four largest US airlines.

Speaking at the annual shareholders’ meeting, Mr Buffett said “the world has changed” because of the coronavirus.

He then said he had been wrong to invest in the airline industry.

Mr Buffett’s comments came just hours after Berkshire Hathaway announced a record $50bn (£40bn) net first quarter loss, Reuters news agency reports.

The conglomerate had an 11% stake in Delta Air Lines, 10% of American Airlines, 10% of Southwest Airlines, and 9% of United Airlines, according to its annual report and company filings.

The firm began investing in the four airlines in 2016, after avoiding the aviation industry for years.

What did Warren Buffett say?

Mr Buffett told the meeting, which was held virtually: “We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss.

“We will not fund a company that… where we think that it is going to chew up money in the future.”

Image copyright
Getty Images

Image caption

The US travel industry has almost collapsed because of the coronavirus pandemic

The US travel industry has almost collapsed as a result of the coronavirus pandemic, with airlines cutting hundreds of thousands of flights and taking thousands of planes out of service.

Mr Buffett said he had been considering investing in additional airlines before the pandemic hit.

“It is a blow to have, essentially, your demand dry up,” he said. “It is basically that we shut off air travel in this country.”

In a statement, Delta said it was aware of the sale and has “tremendous respect for Mr Buffett and the Berkshire team”.

The airline added that it remains “confident” in its strengths.

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