Legendary Wall Street investor Warren Buffett has long been skeptical of big-name IPOs. That's why some Buffett followers were surprised to see Buffett’s Berkshire Hathaway Inc (NYSE: BRK-A) (NYSE: BRK-B) invest $550 million in the upcoming Snowflake IPO.
However, experts familiar with Buffett’s investing philosophy say the Snowflake investment may not be what it seems.
New filings this week revealed that Berkshire is taking a $250 million stake in Snowflake at the IPO price in a secondary offering and is also buying another 4.04 million shares of Snowflake from a current investor in a secondary deal. At the midpoint of the expected IPO price range of $80 per share, Berkshire’s stake will be worth roughly $550 million.
Passing On Uber: Buffett has famously shied away from both tech stocks and IPOs. When asked about the high-profile Uber Technologies Inc. UBER IPO last year, Buffett said he hasn’t ever invested in an IPO in his 54 years on Wall Street.
“The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that’s going to better than 1,000 other things I could buy where there is no similar enthusiasm… just doesn’t make any sense,” Buffett said.
Despite the headlines surrounding Berkshire’s Snowflake investment, Whitney Tilson said this week that Berkshire’s relatively modest position is likely not a sign that he has changed his philosophy on IPOs.
“Rather, it was likely initiated by executives Todd Combs or Ted Weschler (I'd guess Combs), who will eventually replace Buffett in managing Berkshire's enormous investment portfolio,” Tilson said.
Berkshire Evolving: In fact, Buffett also said last year that “one of the fellows in the office” was responsible for Berkshire’s first ever investment in Amazon.com, Inc. AMZN, likely referring to either Combs or Weschler.
“Both are more comfortable investing in the tech sector – and Buffett certainly isn't going to second guess them, especially for such a small investment. $600 million is a drop in the ocean of Berkshire's stock holdings, which were valued at $207 billion at the end of the second quarter,” Tilson said.
Benzinga’s Take: Buffett’s value investing approach has often led to him missing out on trendy stocks on Wall Street, but his long-term success is proof that slow and steady wins the race. In fact, 16 months after Uber’s massive IPO, the stock is still down 18.4% from its IPO price.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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