- Warren Buffett Berkshire Hathaway plans to invest about $ 570 million in Snowflake when the cloud-data platform becomes public.
- Berkshire is set to buy nearly 7 million to 7.4 million shares, giving it a nearly 2.5% stake.
- The stakes are noteworthy because Buffett is famously sticking to the businesses he understands, and exploding IPOs as a bad value for money.
- “We want to buy things where no coin maker sells us,” Buffett said in an interview last year.
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Warren Buffett̵7;s Berkshire Hathaway is set to invest approximately $ 570 million in Snowflake when the cloud-data platform becomes public with a potential $ 24 billion valuation in the coming weeks.
The company of the famous investor participating in an initial public offering through a “unicorn” – a private startup worth more than $ 1 billion – could be an extraordinary sight rather than a horse with a horn.
Berkshire signed up to buy $ 250 million worth of Snowflake stock in a private placement. It also agreed to buy 4 million shares from former Snowflake CEO Robert Muglia at an IPO price.
Snowflake expects its share price to be between $ 75 and $ 85. As a result, Berkshire is set to release between $ 550 million and $ 590 million for nearly 7 million to 7.4 million shares.
Berkshire shares are likely to give it a 2.5% to 2.6% stake in the software team, targeting an estimate of $ 20.9 billion to $ 23.7 billion – more than 78 times its revenue last year. finance.
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Berkshire’s stake in Snowflake is surprising because Buffett avoided technology stocks in most of his career. The investor prefers to stay within his “circle of ability” and invest in companies he understands.
One of Buffett’s representatives, Todd Combs, is likely behind Snowflake’s investment because his signature is on filing an IPO. Still, it was a frustrating departure for Berkshire to back a tech company that lost nearly $ 350 million last financial year.
The firm of Berkshire businesses is dominated by stable, reliable businesses such as utilities, manufacturers, retailers, and insurers. Similarly, the largest assets in its stock portfolio are relatively poor companies such as American Express, Coca-Cola, Bank of America, and Kraft Heinz.
The dazzling exception is Apple, the most important handle on Berkshire’s portfolio. However, Berkshire only invested a few years ago, and Buffett sees the iPhone maker as more of a consumer products company than a tech firm.
‘They didn’t even call us’
Buffett and his business partner, Charlie Munger, avoided IPOs and warned investors against long-term participation in them.
“For 54 years, I don’t think Berkshire bought a new issue,” Buffett said in an interview with CNBC last year. The only one is StoneCo, a group of digital payments in Brazil that Berkshire supported when it went public in 2018.
Buffett highlighted the hype around IPOs, and the strong incentives to raise their prices, as compelling reasons to stay away.
“How is it the best single thing your money can use on a given day [when] everyone in the world is forcing it? Buffett asked. It makes no sense. “
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“We want to buy things where no coin maker sells them to us,” he added.
Buffett also pointed out at the 2004 Berkshire annual meeting that the timing of IPOs tends to favor the company, not new investors.
“The seller decides when to go to the market in most cases,” he said. “They don’t choose the time that is best for you.”
Buffett said in another interview last year that assessment was a major concern for him.
“I will definitely not buy a business for $ 25 billion,” Buffett said, adding that it would earn $ 2.5 billion up to $ 3 billion in revenue before taxes in five years “to be on the same radar screen of things you can do. Buy now. “
The investor also dismissed the idea that avoiding IPOs would mean losing to future stars like Amazon and Google, while he argued that most of them are becoming duds.
“You can go around making a dumb bet and win,” he said. “It’s not something you want to take as a lifelong policy, though.”
Berkshire’s reputation for eschewing IPOs has led companies to not even bother to contact Berkshire before going public.
“They didn’t even call us,” Munger told CNBC in an interview.
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A shift in stance
Because of Buffett’s historic aversion to tech companies and IPOs, it’s surprising that his company buys a software business that makes losses at a high value.
The best explanation would be Buffett’s reliance on Combs’ judgment, especially since $ 570 million is not a big bet for a company with a nearly $ 200 billion stock portfolio and close to $ 150 billion cash in the final count.
Snowflake investment is also the latest sign that Berkshire has changed its strategy and is looking for new types of investments.
For example, it bought shares in a gold miner for the first time in the last quarter, presented a 5% stake in Japan’s five largest trading companies in just one week, and destroyed Wells Fargo’s stake in a 17-year low last week.