Warren's IPO History

Over the years, Warren Buffett and Berkshire Hathaway have a fairly standard model for their investing.
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1
Look for undervalued companies that are easy to understand.
2
Acquire significant stakes in the company.
3
Hold it forever.

Snowflake

Last year, Buffett’s made his first entry into the IPO space since Dwight D. Eisenhower was president; he has previously steered clear of all IPOs, stating that the problem with IPOs is that they’re orchestrated to achieve the best results for the selling investors, not the buyers. However, he bought heavily into the Snowflake IPO, totaling $735 million, and making up 2.2% of the cloud data-warehousing specialist’s stock that went public in September of 2020. By the end of November 2020, the purchase was worth $2.1billion, and now with Snowflake at $350/share, the value has held. A 200% gain is not a bad return.

Nubank

The most recent pre-IPO in Berkshire’s sights began with a $500 million investment in June of 2021 into the Brazilian fintech Nubank. Nubank has plans to go public before year’s-end. Though not profitable in its last filing, the IPO is expected to give the company a valuation of between $40-100 billion. Berkshire invested $500 million in the company when it was valued at around $30 billion. This investment gave Berkshire an approximate 1.66% stake in the firm. Nubank is the largest challenger bank in the world, with 40 million Latin American depositors in Brazil, Argentina, Mexico, and Colombia. While no one knows what the ultimate Nubank share price will be, some valuations put it at $55 billion, making it an 83% gain for Buffett and Co.

Paytm

Another ongoing IPO that Berkshire Hathaway is investing in is India’s Paytm. Berkshire and Buffett put in about $300 million at the time of their investment, giving them a 2.8% share of the digital payments startup, valued at $10 billion. They are in good company with Alibaba, Ant Financial, and SoftBank, all having a stake in Paytm. The four firms have decided to sell a portion of their shares in the IPO, which is expected to raise $2.2 billion for the company’s market debut. If the expected valuation of $19 billion comes true, then Berkshire is looking at a 60% gain in three years; other predictions say that Berkshire may see up to a 300% gain.

It appears that with their Paytm and Nubank investments, Buffett is feeling more comfortable with tech purchases from the fintech sector.

Robinhood

The most recent pre-IPO in Berkshire’s sights began with a $500 million investment in June of 2021 into the Brazilian fintech Nubank. Nubank has plans to go public before year’s-end. Though not profitable in its last filing, the IPO is expected to give the company a valuation of between $40-100 billion. Berkshire invested $500 million in the company when it was valued at around $30 billion. This investment gave Berkshire an approximate 1.66% stake in the firm. Nubank is the largest challenger bank in the world, with 40 million Latin American depositors in Brazil, Argentina, Mexico, and Colombia. While no one knows what the ultimate Nubank share price will be, some valuations put it at $55 billion, making it an 83% gain for Buffett and Co.

So Why is Buffett Looking at IPOs ?

In the past, Buffett has made decisions to look beyond the US markets for deals when he thinks US stocks are overpriced. He famously wrote to his partners in 1967 that in the current raging bull market, he is unable to find suitable investments.

Why IPOs now? One of the most common indicators he uses for deciding if stocks are under or overvalued is his global version of the Buffett Indicator, which takes the combined market caps of the world’s publicly traded stocks, then divides this by global GDP. A reading of over 100% indicates the global stock market is overvalued relative to the world’s economy. In September of this year (2021) it hit a record 142%.

Buffett has likely surmised that IPOs and pre IPOs are the only way to get companies at a reasonable valuation, and once they go public, the market will be hot. Two of the IPOs have been in finance and banking, which is a field he started investing in back in 1969 (purchasing Rockford Bank) and is very comfortable. The Snowflake deal is not in his wheelhouse, but the valuation was correct, and he has done well.

It appears that with their Paytm and Nubank investments, Buffett is feeling more comfortable with tech purchases from the fintech sector.

Going Forward

Buffett has surprised those that follow him on several occasions, and his recent plunge into IPOs has fit the bill. It is curious to see what will come next from the man if more IPOs are on the horizon or just looking for a traditional purchase next. Only time will tell.
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