At Berkshire Hathaway’s 2018 annual shareholder meeting, Warren Buffett lamented missing the opportunity to invest in Google. The chairman and CEO admitted he did not understand the technology well enough to determine whether the companies had a durable competitive advantage or if the “prospects were far better than the prices indicated” at the time. In the last decade, Buffett has appointed Todd Combs and Ted Weschler to manage a portion of the conglomerate’s stock investments. The two submanagers have been credited with adding investments in payment companies Visa and Mastercard to Buffett’s already large stake in American Express. More recently, Combs invested in two emerging market payment companies, Paytm and StoneCo Ltd.
Paytm,1 a privately held company, is best known as India’s largest mobile payments company, which facilitates transactions across 300 million users2and over 7 million merchants.3 Helped by the demonetization of 87% of India’s currency in circulation, Paytm has become a dominant competitor in mobile wallet payments, which have grown 14x in total volume since 2014.4Importantly, India’s real GDP growth is expected to outpace growth in emerging market developing economies and advanced economies through 2023, driven in part by robust consumer spending.5 As Buffett aptly stated, “The potential for India is incredible… it’s a lot of people, a lot of buying power.”
StoneCo,6 which began trading on the NASDAQ in October 2018, is the fourth-largest payment processor by volume in Brazil.7 Brazil is the fourth-largest market for non-cash transaction volumes in the world, and there is increased opportunity for growth. The nation’s retail e-commerce sales are expected to grow at a compound annual growth rate from 2017 to 2022.8 StoneCo’s target demographics are small and medium-sized businesses within small and medium-sized cities. Cities with between 20,000 and 500,000 inhabitants are expected to account for more than 50% of Brazil’s total consumer spending growth between 2015 and 2025.9 The company estimates there are 8.8 million small and medium-sized businesses that are underpenetrated and ripe for outsized growth.