Buffett Google bet 2 decades after billionaire inspired search IPO

Inside Google’s IPO prospectus 21 years ago, founders Larry Page and Sergey Brin gave a complimentary nod to Warren Buffett, citing the billionaire investor as a major influence in a letter to potential investors.

They titled the founders’ letter “‘A user manual for Google shareholders’ and noted that there was a footnote worth reading.”

“Much of this was inspired by Warren Buffett’s articles in his annual reports and the ‘Owner’s Manual’ he wrote to Berkshire Hathaway shareholders,” the footnote said.

More than two decades later, Buffett shows that admiration goes both ways. Berkshire HathawayBuffett’s holding company announced late Friday that it has a stake in Google’s parent company Alphabet It was valued at approximately $4.3 billion as of the end of the third quarter, making it the firm’s 10th largest equity holding. This marks one of Berkshire’s most significant tech bets in recent years — Apple’s It is the firm’s largest holding, and on Monday, Alphabet increased its shares by 3%.

It’s a rare move by Berkshire, which has been hesitant to buy fast-growing tech companies for decades, and the first time the firm is known to have a stake in Google. Buffett, 95, is stepping down as CEO at the end of this year, and longtime lieutenant Greg Abel is set to take the reins.

In 2017, Buffett said: I regret it Berkshire didn’t buy shares in Google years ago, when its insurance subsidiary Geico paid hefty fees to advertise on its network. He also admitted that he missed AmazonThe company, which Berkshire bought in 2019, still owns e-commerce shares worth $2.2 billion.

Alphabet shares are up 50% this year following Monday’s gains and are trading a fraction of the all-time high they reached last week. The company achieved its first $100 billion revenue quarter in the third quarter, driven by the growth in its cloud unit, which hosts artificial intelligence services. The cloud division also has a $155 billion backlog from customers and an updated chip lineup that sets it apart from other AI players.

Alphabet’s valuation is lower than most of its AI-powered megacap peers. The stock is trading at about 26 times next year’s earnings, compared with Microsoft’s 32, Broadcom’s 51 and Nvidia’s 42, according to FactSet.

Page and Brin are currently ranked seventh and eighth, respectively. Forbes billionaires listHe’s right behind Buffett in sixth place.

Google founders referenced Buffett multiple times in the company’s IPO prospectus. Page and Brin once effectively warned investors that quarterly financial statements may not always look pretty.

“In our view, external pressures often encourage companies to sacrifice long-term opportunities to meet quarterly market expectations,” they wrote. “In the words of Warren Buffett, ‘We’re not going to ‘fix’ quarterly or annual results: If the earnings numbers are bumpy when they get to headquarters, they’ll be bumpy when they get to you.'”

In explaining the logic behind the dual-class stock structure that gives founders enormous voting control, they cited Berkshire as one of the companies that had implemented it previously and successfully, along with media companies. New York TimesWashington Post (now owned by Jeff Bezos) and Wall Street Journal publisher Dow Jones (now owned by Jeff Bezos) News Company.)

“Media watchers have noted that dual-class ownership allows these companies to concentrate on their core, long-term interests in serious news coverage despite fluctuations in quarterly results,” Page and Brin wrote. “Berkshire Hathaway implemented the dual class structure for similar reasons.”

WRISTWATCH: Berkshire announces new Alphabet state worth $4.3 billion.