Why Berkshire Hathaway sold out of Visa and Mastercard

Berkshire Hathaway, as has been widely reported, sold more than $3 billion in stock in the payment giants Visa and Mastercard – but why?

According to a securities filing in the US, dated 14th February, the Berkshire Hathaway sold $1.8 billion in Visa shares and $1.3 billion in Mastercard stock.

At the same time, the company increased its participation in Nubank, the largest FinTech bank in Brazil that is highly active among the country’s Bitcoin investors.

In late January Payments Cards & Mobile reported that all three major networks posted monster revenue updates beating analysts and C-suite predictions – so why sell now, just as the stock starts to roll after a sleepy start to 2022.

In Q4 2021 (pre-earnings announcement), Berkshire trimmed its stake in Visa by more than 13%, selling about 1.27 million shares. Visa stock got off to a slow start this year but has been rolling since the company reported earnings results for the first fiscal quarter of 2022, which is the quarter ending December 31, 2021.

Visa reported earnings per share (EPS) of $1.83 for the quarter on net revenue of $7.1 billion, beating analyst estimates. Total payment volumes continued to trend nicely, while international payment volumes continued to recover as well.

Visa’s CFO Vasant Prabhu said on the company’s recent earnings call that while there has been a modest impact on cross-border volume from the omicron coronavirus variant in recent months, management expects the recovery to resume in February.

Prabhu said the current fiscal year is off to a strong start and that he expects growth this year to be higher than pre-pandemic levels as cross-border volumes continue to recover.

Perhaps Berkshire see competition being a problem in the future. They may also foresee a post-pandemic world that relies less on travel.

But right now, it’s hard to see a future where Visa becomes irrelevant. Another possibility is that Berkshire simply didn’t like their total exposure in the space, which brings us to the next stock it sold.

Berkshire also reduced their position in Visa’s main competitor, Mastercard. Berkshire during Q4 sold more than 302,000 shares of Mastercard, reducing the company’s stake by about 7%.

This points to a concern about Berkshire’s overall exposure to the two largest payment rails and growing competition from technology like the blockchain.

Mastercard recently reported diluted EPS of $2.41 in Q4 of 2021 on net revenue of $5.2 billion, also beating analyst estimates.

Similar to Visa’s latest earnings report, Mastercard reported that both gross dollar volume and cross-border volume had grown nicely on a year-over-year basis and suggested that a nice recovery continues to develop.

So has Berkshire, still governed by the most successful investor of all time Warren Buffet, made a mistake? Have they gone to early in their sale?

Analysts upped their price targets on Visa and Mastercard following their latest earnings wins, largely citing optimism that cross-border volume, which is heavily tied to spending on things like international travel, can return to pre-pandemic levels this year.

Visa and Mastercard are also both well-positioned to take advantage as more payments convert from cash to digital.

While there is a lot of competition out there from alternative payment options, big dominant players like Visa and Mastercard should be able to buy the technology they need or develop it in-house to keep pace.

So, mistake or careful strategic de-risking? Let us not forget, as has NOT been widely reported, this was the second-consecutive quarter of selling for the two payments giants, which have been part of Berkshire’s portfolio since 2011.

Berkshire still owns about $1.4 billion of Mastercard and $1.8 billion of Visa, as of year-end…