Monologue: Annualized Revenues Are BS

0:00This is an iHeart Podcast.

0:24Hello and welcome to this week's Better Offline monologue. I'm your host, Ed Zedtron.

0:35and i've heard so many nice things from all of you about last week's haters guide to ai and i really couldn't be more grateful it was a labor of love and hate in some cases i guess as we approach what i see as the precipice of this hysterical era we're going to start seeing and hearing big tech and big model developers make intentionally vague statements with the intent of misleading you and the media and i really want to be clear i'm sorry there's going to be some maths in this but it's necessary for you to know how people are trying to swindle you and the media too. So Microsoft kicked this off this week with this week's earnings, breaking out annual revenue from their Azure Cloud platform, where they sell the means for people to run applications and organizations in the cloud, but also bury their AI services.

1:13And they did this for the first time in history. This naturally led people to say that Azure's growth, which is up 34 % from 2024, when they didn't disclose it, was driven by artificial intelligence somehow, despite the fact that Microsoft intentionally stopped reporting on their earnings, their AI revenue, in January, when they said they had 13 billion of annualized revenue, meaning about$1.08 billion a month. And God, that term annualized is a tricky one. Also, by the way, they made over$70 billion on a year, so$13 billion of annualized revenue is actually not that much. But anyway, the term annualized is a really tricky one.

1:47When you read or hear someone say annualized revenue, it means a particular month multiplied by 12. However, what they want you to think is that annualized means that the company in question will make that much money in the year, in part because there isn't a single goddamn media outlet that seems capable of seeing through this. I should also be clear that annualized revenue is a one-month snapshot. If I sell boxes at$100 a piece and sell three in June, I have$3 ,600 in annualized revenue. That's$300 times 12, because that's a year. But if I only sell at one box in July, that means I have$1 ,200 in annualized revenue, which doesn't quite sound so good.

2:25My June annualized revenues of$3 ,600 make it sound like I'll make that much in a year. However, if I also tell you that I only sold one box and I had$1 ,200 of annualized revenues based on July, you'd suddenly be more concerned, and quite concerned indeed, about the volatility of this box business. In simpler terms, annualized revenue is a deliberate attempt to hide something or mislead someone. Nowhere has this been more obvious than in OpenAI's recent leak of their$12 billion in annualized revenue, which the information, who I genuinely like and appreciate, reported as somehow indicative of OpenAI being on track to make their$12.7 billion in revenue for 2025.

3:03Here's the thing. $12 billion in annualized revenue means$1 billion in revenue in one month, which is genuinely a milestone. Kind of impressive. At least it would be if OpenAI didn't burn upwards of$8 billion this year, even though I think they're probably going to burn more than that. But anyway, back in May, CNBC reported that OpenAI was at$10 billion in annualized revenue, meaning$833 million. And back in December 2024, they were at$5.5 billion in annualized revenue. And that's the thing. And by the way, 5.5 works out to about$458 million in the month. But that doesn't mean that they're going to hit$12.7 billion.

3:42In fact, best case scenario, this means that OpenAI has, by my calculations, made just over$5 billion in total revenue through the end of July 2025. That's in the first seven months of the year. So anytime you see annualized revenue, you should immediately be suspicious of whoever is leaking it. OpenAI has likely leaked this number as a means of making people believe that they'll make$12 billion or more in 2025. They're projected to do$12.7 billion, which would be a remarkable number that they're not even halfway towards reaching, despite what some people might be reporting. Now, another company playing silly buggers with this figure is, of course, Anthropic, who have leaked so far this year every single month other than April.

4:24It's kind of crazy. But they started in January when they leaked that they'd hit a billion dollars in annualized revenue. And then they had$1.4 billion in February, and then$2 billion annualized in March, and then$3 billion annualized in May, and then$4 billion annualized in June. One might believe this means that Anthropic will make$4 billion this year, but the actual numbers work out to the company, making no more than$1.15 billion through the end of June. And if you want to check my maths, you can. A billion dollars of ARR would be$83 billion,$1.416,$2 billion would be$166, then May would be$3 billion annualized, so it would be$250 million, and$4 billion ARR would be$333 million.

5:07I'm saying this with a person that emails me. He's like, what are the numbers? Anyway, these are obfuscations. These are intentional. Anthropic has made no more than$1.15 billion through the end of June. That is not going to get them to$4 billion without something ridiculous. Yeah, I saw a Bloomberg reporter, love you, Ed, but saying maybe they'll hit$9 billion in annualized revenue this year. That's an absolute joke. OpenAI barely hit that. It's all deliberate and it's all intentional. It's all so that you kind of watch the mouth and not the hands. it's so that you don't think too hard because when you look at the actual numbers open ai has only made like 5.5 billion dollars this year that's not it they're not even to the lofty goals they have they're not even halfway there and anthropics are 1.15 billion these are not huge amounts and they're dwarfed by the fact that each i think open ai is going to burn eight to probably 15 billion dollars this year and that's after revenue and anthropic i think they're three to five billion dollars it's an absolute joke but you you the listener i want you to know that all of this is intentional as anthropic is currently raising around as large as five billion dollars from the bone-sore capital of the world and the media is helping by obfuscating their actual revenue open ai is doing the same thing the information reported they're at 7.5 billion dollars of the remaining well 30 billion that they actually have to raise with softbank covering the let the rest they're trying to hoodwink people and i want you the listener to know better agree with me disagree with me i'd much rather you knew what these terms mean and why they're being used and yes there's going to be someone who says annualized is a fine term people use it ethically and that's true you can use this term ethically you can use this to say yeah if things keep up at this pace we'll be at this that's not what these fuckers are doing they're doing this as a means of they're selling it to people that aren't going to think about it too hard so that those people don't think about it much more than thinking oh open ir is going to make so much bloody money oh anthropics going to do that too and it sucks it sucks because this is this is being used to make people richer to make Dario Amadei and Sam Clammy Sam Altman more and more money and it's really sad it's sad but it's also a sign that things are kind of deteriorating and yes there are going to be people that say well the revenue is going up that means things are going well and in a situation where things are going well these companies would talk about the real revenues they wouldn't be playing weird card games and weird shuffling shuffling those now as i'm saying this forgetting what you call the game with the cup on the ball someone's going to email me and make fun of me for this i'm stupid you don't get to do that but in all seriousness they're doing tricksy things and they're doing it because they're trying to raise money it's a classic swindle and it pisses me off to see because people are going to think this is a victory for the ai boom when in reality they're trying to hide something a little more grim than that which is revenues are nowhere near their ars they wish they were and indeed i think in the next six to 12 months we're going to see this sour somewhat i look forward to telling you regardless what happens what's actually happening

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