- Berkshire Hathaway just made about $800 million off of Snowflake's market debut, despite Warren Buffett's aversion to IPOs.
- It's widely speculated that Buffett lieutenants Todd Combs and Ted Weschler orchestrated the Snowflake bet.
- The legendary value investor hasn't invested in a newly public company since the Ford IPO in 1956.
Warren Buffett, the man who pioneered buy and hold investing, just made quite a fast billion bucks from a type of investment he once mocked.
Berkshire Hathaway bought $250 million worth of Snowflake stock at the IPO price and an additional 4.04 million shares from another stockholder at the debut price. Shares of Snowflake surged 111% to about $253.93 at its market debut on Wednesday, pushing Berkshire's stake to about $1.55 billion from around $730 million based on the IPO pricing of $120 apiece. That's a more than $800 million paper profit on day one.
At Snowflake's session high of $319, Berkshire's one-day take would top $1 billion.
Still, the Snowflake investment is particularly out of character for the "Oracle of Omaha," who has been vocal about his distaste for buying companies around their market debut.
The legendary value investor hasn't invested in a newly public U.S. company since the Ford IPO back in 1956. It's widely speculated that Buffett lieutenants Todd Combs and Ted Weschler orchestrated the Snowflake bet.
Buffett has a long history of avoiding new stock offerings. In a 2019 CNBC interview, when asked if he planned to buy the highly anticipated Uber IPO, Buffett replied, "In 54 years, I don't think Berkshire has ever bought a new issue."
"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," he added.
Buffett previously said investors are often buying into an IPO because of the hype involved with them and because they want to catch up with others getting rich, and that's not a sound basis for an investment.
During a 2012 annual shareholder meeting, the billionaire investor said he tried to "stay away" from public market newcomers.
"I mean, the idea, that somebody is bringing something to market today, a seller who has a choice of when to come to market, and that that security, where there's going to be a lot of hoopla connected with it, is going to be the single cheapest thing to buy out of thousands and thousands and thousands of businesses in the world is nonsense, you know," Buffett said then.
The longtime value investor only ditched his usual aversion to technology stocks in recent years under the influence of his lieutenants. Berkshire's massive Apple stake — now accounting for about 40% of its equity portfolio — played a crucial role in helping the conglomerate weather the coronavirus crisis this year.
The move to invest in Snowflake could be Berkshire's attempt to get in on the next tech darling after missing out on the industry's explosive growth for years and years.
The Renaissance IPO ETF, which tracks newly public companies, is up nearly 60% this year, after a rough first half of 2020 due to Covid-19. The ETF returned nearly 35% in 2019, beating the broader market. Lyft, Peloton, Beyond Meat, SmileDirectClub and Zoom all went public on the Nasdaq in 2019. Uber, Pinterest, Chewy and Levi Strauss went public on the NYSE last year.
At Berkshire's 2016 annual meeting, Buffett compared IPO investing to buying lotteries. "You don't have to really worry about what's really going on in IPOs. People win lotteries every day," he said then.
It's not lost on venture capital firm Sutter Hill Ventures, founding investor in Snowflake, that this is the first IPO Buffett has chose in more than half a century.
"Warren Buffett is the greatest investor on the planet and we're humbled by the fact that Berkshire is making a bet on Snowflake. We're going to work hard to make it worth that bet," Sutter Hill managing director Mike Speiser said on CNBC's "Halftime Report" on Wednesday.
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.