Berkshire Hathaway’s (BRK.B) Services and Retail segment has stakes across flight services, electronics, FMCG (fast-moving consumer goods), retail, automotive, and financial services. However, the company hasn’t built up a stake in the e-Commerce industry in or outside the United States.
CEO Warren Buffett remains wary of the fact that these acquisitions will come at high multiples, low profits, and with the prospect of future earnings rather than current cash flows. The company has investments in traditional models such as Walmart (WMT) rather than e-tailers such as Amazon (AMZN).
Access to end consumers garners higher valuations than largely any other business model. he e-tailers are easily expanding the scope of their services in order to generate higher cash flows from their existing models. Berkshire’s Services division managed 13% growth in the first quarter on 33% growth in electronics retailer TTI. Its Retail division could manage only 5% growth, with BHA (Berkshire Hathaway Automotive) managing 4.5% growth. BHA formed about two-thirds of the company’s retail revenue.
Berkshire’s financial services holdings have also seen weaker earnings owing to higher interest rates resulting in weaker mortgage revenues. The segment’s operating margins have remained upbeat, with pretax earnings of $357 million in services, a rise of 37% on a YoY (year-over-year) basis. Retail also managed growth of 19% to $158 million on a pretax basis. Higher revenue growth implies relatively low spending and a better product mix.
NetJets and TTI offer higher margins and have seen their shares rise in recent quarters. Alternative asset managers (IYF), including the Blackstone Group (BX), are focusing on innovative solutions through online platforms offering a scope of faster global scalability in order to generate higher alphas.