Market Commentary: 1 Stock Buffett Did NOT Sell Has 5x Growth

Perhaps the most anticipated 13F filing of all is from Berkshire Hathaway. Investors muse: What did Buffett just buy? What did Berkshire Hathaway sell?

When the Berkshire 13F report came out, investors flocked to see the latest moves by the Oracle of Omaha, which included:

• Taiwan Semi: SOLD.
• US Bancorp: SOLD.
• Bank of New York Mellon: SOLD.
• Chevron: SOLD.
• McKesson: SOLD.
• Ally Financial: SOLD.

It was a veritable who’s who of quality names all taken out to the woodshed and chopped by the maestro from Nebraska.

In retrospect, his sales of banks were prescient. And recent news of declining sales and forecasts from Taiwan Semi makes his sale of the semiconductor manufacturer downright visionary. But lost in the furore of all his transactions was sight of what he didn’t touch, a rare position picked up pre-IPO, Snowflake. Why did Buffett nor his lieutenants not sell “high risk” early-stage company?

Key Points

• Berkshire Hathaway sold several of its holdings in the 13F filing, including Taiwan Semi, US Bancorp, Bank of New York Mellon, Chevron, McKesson, and Ally Financial.
• Snowflake announced a share repurchase plan and aims to 5x revenues by 2030.
• Snowflake’s net revenue retention rate is 158%, which means that customers are paying 58% more now than they were a year ago. This suggests that customers are “delighted” with Snowflake’s product and services.

Why Berkshire Is Holding Snowflake

One primary reason that Buffett is likely holding Snowflake is management’s stated goal to 5x revenues from current levels before the turn of the decade.

As of Jan 31 2023, Snowflake reported fiscal year revenues of $2.06 billion. The prior year figure was $1.2 billion. And in 2021 the company generated $592 million, which almost identical to the $589 million reported in the most recent quarter.

So in the space of two years, Snowflake has accelerated revenues to the point it’s now generating in one day what used to take four.

Can it reach the lofty $10 billion goal?

Even if growth slows by almost half from current levels, the goal should be eclipsed. Likely Buffett, how has a keen sense for what the future holds, can see where Snowflake is headed, and isn’t willing to dispose of any shares.

Snowflake Selects A Favorite Buffett Strategy

Another reason Buffett may be holding on to the position is that the Board of Directors has authorized a share repurchase plan. By so doing, Buffett’s stake in the company is increased.

Indeed Buffett is such a fan of this play he has applied it to his own firm, Berkshire Hathaway, to great effect.

Admittedly, most companies applying this strategy face the problem of figuring out how to deploy hoards of cash. That’s certainly the case with Berkshire which has almost $100 billion in short-term investments.

By contrast, Snowflake faces no such conundrum. It has posted negative operating income in every quarter for as far back as we can see. If it’s not a 19 quarter streak of losses, it’s 20! Regardless, the decision to repurchase shares implies management believes the company is seriously undervalued.

Buffett’s #1 Metric: Snowflake Passes

A final reason to hang on to Snowflake shares is a fact Buffett values perhaps most of all: customer delight.

Buffett has famously stated that it’s nearly impossible for a business that delights its customers to fail. What evidence do we have that Snowflake delights its customers?

A little-known metric called net revenue retention rate, which measures how much customers are paying this period versus the same period a year ago.

For Snowflake, that number is 158%, meaning customers are paying 58% more now than before. That doesn’t happen unless customers are delighted with the product. And when it comes to product, Snowflake’s is widely lauded for its flexibility, scalability, and ability to offer previously untapped insights to businesses.