Berkshire Hathaway’s latest bet isn’t a no-brainer or a head-scratcher; it’s somewhere in between.
What’s the problem?
Berkshire – which has seen Warren Buffett retire as CEO and chairman since the start of the year – agreed to invest $330 million in Bending Spoons, on top of a $600 million infusion when the Italian tech conglomerate went public in July, giving the Nebraska giant a 4% stake.
Bending Spoons revealed Berkshire’s support in a press release Wednesday, catapulting its stock up nearly 50% in two days, a phenomenon known as the “Buffett effect.” The stock fell Friday, but still ended the week more than 20% above Monday’s opening price.
Berkshire agreed to buy 10 million shares for $33 each, a discount of about 13% from Bending Spoons’ closing price of $38 on Tuesday, the day before the deal was announced.
CEO and co-founder Luca Ferrari described Berkshire in the press release as “one of the most talented and respected capital allocators in the world” and a “long-time source of inspiration” for Bending Spoons.
Neither company responded to Business Insider’s requests for comment.
What are bending spoons?
Bending Spoons acquires digital businesses, transforms and optimizes them to increase profits, then reinvests those profits in other acquisitions.
It has pursued this strategy for more than a decade and has never sold a significant business. Its acquisitions to date include AOL, Evernote, Vimeo, Eventbrite and WeTransfer.
The Ferrari company said in the press release that it “strives to envision the most successful version of an acquired business” and then works to close the gap between that vision and reality “as quickly and completely as possible.”
Bending Spoons said this typically involves “deep” transformation such as “reorganizing teams, overhauling technology, redesigning user interfaces, accelerating product development, and improving marketing and monetization,” often with a healthy dose of AI.
Ferrari gave the example of Evernote in a recent episode of the “Joys of Compounding” podcast.
He said the company had about 350 employees when Bending Spoons acquired it in early 2023. That dropped to about 60 within 12 to 18 months, and it is now run by about 20 people.
Still, Ferrari said Evernote “launched by far the biggest update to the product in perhaps a decade” this spring.
Luca Ferrari, CEO of Bending Spoons. Marco Bertorello / AFP via Getty Images
Why is Berkshire’s investment a surprise?
Bending Spoons is primarily a technology conglomerate, and Berkshire has avoided technology for most of its history, with a few big exceptions, namely Apple and Alphabet.
This is because Buffett is a bargain hunter who likes to invest with a “margin of safety” in case something goes wrong, and tries to stay within his “circle of competence”, adhering only to what he deeply understands.
Technology companies are rarely a good fit for his approach because they typically have high valuations, unpredictable prospects, and complex products and services.
Indeed, Bending Spoons generated 32 cents in earnings per share last year. Berkshire is paying more than 100 times that amount per share in the upcoming private placement.
It’s true that Bending Spoons is growing rapidly, with revenue up 126% year over year to $704 million in the second quarter and adjusted operating income jumping 150% to $381 million. However, few would consider this stock a bargain from a fundamental perspective.
Berkshire is also known for being a hands-off acquirer, offering founders the opportunity to cash out while continuing to run their business as they see fit. On the other hand, a key aspect of Bending Spoons’ strategy is to reorganize its acquisitions.
How does the agreement make sense?
Berkshire and Bending Spoons have similarities as well as differences.
Both are decentralized conglomerates that buy companies not to overthrow them, but to own them for the long term. Berkshire is a network of largely autonomous companies, including GEICO, Duracell, Fruit of the Loom, Pilot Travel Centers and BNSF Railway. It has long offered a permanent home to the companies it buys.
Bending Spoons has also positioned itself as a permanent owner, mimicking Berkshire’s approach of taking cash generated by a subsidiary like See’s Candies and using it to acquire more businesses.
Ferrari said in its recent podcast interview that Bending Spoons has fostered a culture of deep concern for the company and does not centralize decision-making, in part because it “robs people of that valuable sense of belonging.”
Buffett wrote “An Owner’s Manual” for Berkshire shareholders. He championed this mindset by keeping more than 99% of his net worth in Berkshire stock and encouraging other company executives and directors to get in on the game as well.
Ferrari also said on the podcast that he has a “pathological love for learning” in different fields. This echoes Buffett’s boundless curiosity and the late Charlie Munger’s insatiable appetite for knowledge. Buffett’s longtime business partner studied architecture, physics, history, meteorology, psychology, law and, of course, investing, among other subjects.
Beyond their similar philosophies, it’s worth noting that investing less than $1 billion in Bending Spoons isn’t a big deal for Berkshire. It has a market capitalization of $1.1 trillion, had cash of $365 billion at the end of June and its largest stock position was worth about $66 billion at the time.
What’s the takeaway?
The Bending Spoons deal could mark an evolution in Berkshire’s investing style following Buffett’s departure as CEO and chairman.
Berkshire has not commented on the purchase or whether Buffett was involved. Its relatively small size could mean that its last investment manager, Ted Weschler, was behind the initiative.
Or it could be new CEO Greg Abel, who this summer invested an additional $10 billion in Alphabet in a private placement after consulting with Buffett.
Whoever is responsible and whatever the reasons for their investment, this will be a fascinating bet to watch for Berkshire followers.
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