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Can Warren Buffett's Grandnephew Make You Richer?

By Jeff Santoro – Nov 3, 2021 at 6:27AM

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Management's acquisitions decisions have been paying off for investors.

Boston Omaha (BOC 0.30%) is an Omaha, Nebraska based holding company that has more than a geographical connection to Berkshire Hathaway (BRK.A -0.36%) (BRK.B -0.30%). Its business model and understated management team makes comparisons to Warren Buffet's Berkshire unavoidable. In fact, Alex Rozak, one of Boston Omaha's CEOs, is also the grandnephew of Buffett.

Investors in Berkshire have profited over the decades largely to the capital allocation skills of Buffett and his partner, Charlie Munger. Similarly, the success of Boston Omaha is going to depend on the leadership of Rozak and co-CEO Adam Peterson. Despite only being a public company since 2017, Boston Omaha is already showing it has the potential to reward shareholders, even if comparisons to Berkshire might be premature.

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Boston Omaha's portfolio

Because it's a holding company, it can be confusing to understand exactly what Boston Omaha does and how it makes its money. Essentially, Boston Omaha has three main segments, billboards, broadband, and insurance. Within these segments, Boston Omaha owns several businesses. Of these three segments, billboards is the largest, comprising 56% of total revenues, followed by broadband at 27% and insurance at 17%. The company also owns minority stakes in a number of other businesses, which comprise a relatively small part of revenues.

High hopes for broadband

The broadband segment only accounted for 27% of total revenues in the last quarter. However, that was a 17% increase from the prior year's second quarter. These broadband investments have helped both the top line and bottom line results. Q2 2021 revenue was a record $14.2 million, and the quarter's year-over-year revenue growth rate of 23.4% was the highest it's been in over a year. In terms of profitability, the broadband segment had the highest gross margin last quarter at 77.3%. This is compared to 61.4% for billboards and 64.6% for insurance. Overall, Q2 gross margin was 34.2% compared to 29.4% one year earlier.

Fiber-to-the-home, a specific type of broadband in which Boston Omaha's businesses specialize in, presents a huge market opportunity. North American broadband providers are predicted to invest more than $60 billion in fiber-to-the-home in the next five years. This constitutes twice as much as any previous 5-year period. Management knows this, stating in their 2020 annual letter: "to a greater degree than before, we may have the opportunity to deploy significant sums into the fiber business." Rozak and Peterson are backing that up with action. In September, Boston Omaha announced the creation of a new broadband company, Fiber Fast Homes, which will partner with new homebuilders to install gigabit-speed fiber broadband in homes nationwide. This emphasis on the broadband segment of the business is what shareholders should be most optimistic about.

An IPO and a SPAC

In January of 2018, Boston Omaha invested $10 million in then-private company Dream Finders Homes (DFH -0.09%), and has continued to do so in the years since. Dream Finders went public in early 2021, and by July, Boston Omaha's investment was worth $100 million.

In September of 2020, Boston Omaha announced it would be sponsoring a special purpose acquisition company (SPAC) called Yellowstone Acquisition Company (YSAC). A SPAC is essentially a shell company that has no actual business, just a pile of investor money it can use to search for a private company to merge with and take public. This past August, Yellowstone agreed to acquire a private aviation infrastructure company called Sky Harbour. If the planned merger goes through, Boston Omaha could see a big windfall from the deal. The additional revenues from these two companies will boost returns for shareholders and provide Boston Omaha with the cash flows needed to continue to build out its portfolio of businesses.

Only just beginning

Boston Omaha is still in the early stages of building its portfolio of wholly and minority owned businesses, but the results have been positive. Shares of Boston Omaha are up over 160% since the company's IPO in 2017, handily beating the S&P 500's 90% gains over the same timeframe. 

Management has shown a pattern of capital allocation decisions that have been accretive to Boston Omaha's results, making it a smart long-term investment for any portfolio. Whether or not Boston Omaha's returns can match those of Berkshire Hathaway remains to be seen, but Rozak and Peterson are making all the right moves and still have plenty of time to make their shareholders richer.

Jeff Santoro owns shares of Berkshire Hathaway (B shares) and Boston Omaha Corporation. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Boston Omaha Corporation. The Motley Fool recommends Dream Finders Homes, Inc. and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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