Anthropic’s Financials Revealed — The Losses Are Stunning

Prof G Markets

The episode explores significant financial volatility and ethical concerns within the tech and sports worlds. It begins with a deep dive int

Key takeaways

• Anthropic reported a $42 billion net loss, though much was attributed to non-cash revaluation charges.
• Paul Kedrosky warns of extreme customer concentration at Anthropic, where two clients represent 25% of revenue.

Main topics

• Anthropic S-1 Financial Leaks
• AI Training Costs vs. Inference Profits

Notable quotes

Earnings before bad things.

Conclusion

The episode serves as a warning about the fragility of trust in both h

Transcript preview

Speaker 5 (0:00) Support for the show comes from VCX, the public ticker for private tech. The U.S. stock market started history's greatest wave of wealth creation, from factory workers in Detroit to farmers in Omaha. Anyone can own a piece of the great American companies. But today, our most innovative companies are staying private longer, which means everyday Americans are missing out. Until now. Introducing VCX, a public ticker for private tech, now available wherever you buy stocks. Visit GetVCX.com for more info. That's GetVCX.com. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the fund's prospectus at GetVCX.com. This is a paid sponsorship. Speaker 8 (0:46) I'm Ina Garten, and each week on Happy Hour, I invite old and new friends for a drink and a fun conversation at my kitchen table in New York City. On this week's episode, I'm joined by Andy Baraghani. We talk all about how he started his career as a teenager at Chez Panisse, to becoming an internet heartthrob from his cooking videos, to opening his first restaurant in New York City this fall. New episodes of Happy Hour are available every Wednesday. You can watch on YouTube or listen wherever you get your podcasts. Cheers. Speaker 1 (1:26) Hogging seats on a crowded train, not saying excuse me, watching videos on your phone with no headphones in. Sometimes it feels like we don't know how to act anymore. What we have been seeing increasingly is people breaking rules. Why should I play by the rules if nobody else is going to do that for me? This week on Explain It To Me, how to mind your manners. New episodes Sundays, wherever you get your podcasts. Speaker 6 (2:08) Welcome Speaker 2 (2:10) to Profiteer Markets. I'm Ed Elson. It is September 30th. Let's check in on yesterday's market vitals. The major indices declined as the bond sell-off continued. The yield on 30-year treasuries hit its highest level since 2002. The 10-year also climbed towards 5.3%. Brent crude fell to around $102 per barrel as the Trump administration ordered an emergency reserve release. Speaker 7 (2:37) And finally, Apple shares fell nearly 3 % on reports that the new CEO, John Ternes, is planning to slim down Speaker 2 (2:45) the company. Okay, what else is happening? Anthropix IPO prospectus just leaked, and the numbers are staggering. According to Reuters, which obtained the draft of the S1, the company reported $4.6 billion in revenue last year, up more than 1,000 % from the year prior. But they also reported an operating loss of $8 billion and a net loss of $42 billion. Anthropic devoted almost a third of the S1 to explaining its risk factors. Those included customer concentration, with close to a quarter of revenue last year coming from just two clients. And then, of course, the existential threat to humanity. Still, the company is expected to go public at a record $2 trillion valuation in November, making it the most highly valued IPO of all time. Joining us to discuss Anthropic's financials, or at least what little we know, we are speaking with Paul Kudrowski. managing partner at SK Ventures. Paul, great to see you. Thank you Speaker 7 (3:44) for Speaker 2 (3:45) joining us. I heard some Speaker 7 (3:47) of your laughter as I went through the numbers. We Speaker 2 (3:53) finally got some numbers. Speaker 7 (3:54) And to be clear, these are 2025, but what do you make of them? Speaker 4 (3:58) Honestly, most of those numbers in one form or another had already leaked and we can go through them one at a time. But I'll take specifically the one as a long ago equity analyst, the one that catches my attention the quickest. Is customer concentration, because customer concentration is nothing for a small company. You expect a small company to have really high levels of customer concentration, meaning that a small number of customers is a material fraction of revenues. But to see a company at this size where two customers are on the order of 25 % of revenues, and there's been some other... leaks, whatever you want to call it, that something like six customers are 60 % of revenues. These are absolutely, to use the technical term, bananas numbers. And why they matter is because it shows how unusual their earliest customers are. They are so consequential, and they're using it in such unusual ways that they're such a material chunk of revenues. And one of the things you always have to watch with young companies, well, it's strange to say at a company this size, is if they're able to jump across and succeed with later customers who are nothing like the early ones. And specifically in this case, Facebook is a good example. Meta is one of their largest customers. We know that from other data. And they're wildly unrepresentative of how, you know, I don't know, Goldman Sachs, pick a standard industrials company or someone else is going to use these tools. So we've got a pretty open question here in terms of two kinds of risk. One is the level of customer concentration. And the second is how representative these early customers are of later customers. Speaker 2 (5:25) Let's look at the numbers as well, though, that we know from 2025. There was the $42 billion in net losses. To be clear, roughly $34 billion of that was a non-cash charge tied to revaluing their financing instruments. So it's a big asterisk on that number. Still big, but maybe there's a caveat there. But $8 billion in operating losses. So that's the amount of money that they're losing from the day-to-day operations. Granted, it's from last year. But what are your takeaways from that number and how important is it when valuing this company? It's Speaker 4 (6:01) hugely important. And this is the point where the finance has theater begins, because what's going to happen is they are going to try and characterize this operating losses as really related to something that we shouldn't be worrying our pretty little heads about, which is to say training costs associated with the creation and running of these models. that on an operating level, just ignoring training costs, and this number is when OpenAI has leaked, Anthropic has leaked, they now all say that on an inference-only basis, they're already cash flow positive in the last couple of quarters. And so, but that's going to be the debate, right? It's this old joke, we used to call it in my analyst days, it's earnings before bad things. If you let me get away with characterizing my earnings before bad things, my earnings look really good. So you have to decide, are these bad things, and they're not so bad because they're fundamental to the business, Are they things that they should be allowed to characterize as something other than operating costs, something you capitalize, for example, like you might with R &D? Or are they actually just the day-to-day parts of running the business? I would argue the latter. The training costs are just the day-to-day running of the business that, you know, whenever you're training new models every six to 18 months, that's not something that you're capitalizing out four or five years like a building. That's part of running the business, and it should be reflected in the earnings that we look at to value the business. And to take it away is kind of financial. theater. But nevertheless, we're going to see a lot of EBBT, earnings before bad things, coming up here. Speaker 2 (7:24) Yeah, it seems like the training costs will be something that, who knows, maybe that'll be stripped out. Because as you point out, they're saying that at least on an adjusted basis, they are profitable right now. But we don't know what they're stripping out. Maybe they're stripping out the training costs. We do know what they're stripping out. It's training costs. I'll take that bet all day long that that's Speaker 4 (7:45) what they're doing. Speaker 2 (7:45) The other thing that supposedly they're stripping out, or there's a question about if they're stripping it out, are these revenue-sharing agreements. Because, of course, Anthropic owes a significant share of its revenue to Amazon, as an example.