Anthropic’s Financials Revealed — The Losses Are Stunning

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1:47Money market's mad. If money is evil, then that building is hell. The show goes on! The folks in there have watched the show, show! Welcome to Prof G 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. And finally, Apple shares fell nearly 3 % on reports that the new CEO, John Ternus, is planning to slim down the company.

2:34OK, what else is happening? Anthropics 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. Antropic 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.

3:21Joining us to discuss Anthropics financials, or at least what little we know, we are speaking with Paul Kudrosky, managing partner at SK Ventures. Paul, great to see you. Thank you for joining us. I heard some of your laughter as I went through the numbers. We finally got some numbers. And to be clear, these are 2025, 25, but what do you make of them? Honestly, most of those numbers in one form or another had already leaked, and we can go through them one at a time. But let's 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.

4:01You 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.

4:36And 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.

5:08And the second is how representative these early customers are of later customers. 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?

5:47It's hugely important. And this is the point where the finance as 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 were already cash flow positive in the last couple of quarters. And so, but that's going to be the debate, right?

6:22It's this old joke, we used to call it in my analyst days, is 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.

6:59That'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 finance theater. But nevertheless, we're going to see a lot of EBBT, earnings before bad things, coming up here. 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.

7:29It's training costs. I'll take that bet all day long that that's what they're doing. 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. And it sounds like, I mean, we know that they are, when they're looking at their gross margins, they're not including that in their calculation. Less material than the training costs, but still consequential, I agree. Still consequential. I mean, how profitable we don't to be clear we don't really know yet because we're only getting leaks but if you had to make a guess at the profitability uh i've and we'll just focus on anthropic right now in 2026 what would you say the profitability picture probably looks like given all of those questions well again absent earnings before bad things taking away training costs and some of the revenue share commitments, I doubt, it would be hard for me to believe that they're not showing some, that it's cashflow positive as it currently stands on an inference only basis.

8:36What those numbers look like, we've seen numbers suggested that it could be as high as a couple of billion dollars in positive cashflow just from inference alone, but that's purely speculation and they haven't released it. So we don't know, but it wouldn't, it wouldn't surprise me, but it's more than dwarfed by the business, the business of running the business, which is to say training costs in some of the other, I'll say more circular revenues, if you back those out and you take those things out and the business looks entirely different. So then the question becomes, well, are you trying to tell me that training costs are not a part of the business going forward?

9:07Because I've sometimes, you know, argued that the first frontier model company to stop training models and just do inference is probably going to win because Wall Street will reward you for cutting costs and generating huge amounts of cash flow. So you can't have it both ways. Either training costs are integral to the business or they're the thing you're going to cut so that you can be fantastically cash flow positive going forward. So I just think they're trying to have it both ways. And, you know, Wall Street's going to give them a wake up call on that. Let's assume that they are stripping out the training costs.

9:37That's part of the bad things. And they're reporting the earnings before that bad thing. uh how bad in your view of an accounting gymnastic move do you consider that to be i mean the the the ultimate the ultimate sort of accounting mismanagement that people cite often is we work where they invented this community adjusted ebitda which a lot of people said was the most ridiculous and we know how that went it didn't work it was a it was a disaster of an ipo uh if that is what they're doing, they're taking out the training costs and saying we're profitable. How bad is that in your mind? How does it compare to, say, community-adjusted?

10:17So I think the community-adjusted earnings was a frankly fraudulent measure, that it was an attempt to hide the fundamental broken economics of the business. I think there is a cash flow business here, but it requires far less money spent on training. So is it fraudulent? No. Is it poor accounting? Yes. Should it be supported by the auditors? No. Should Wall Street punish them for it? Yes. So$2 trillion, given the numbers that we know, you think that's overvalued? Well, it's a ridiculous price. And it's, as friends of mine were saying this morning, some of the largest hedge funds in the world looking at this.

10:50And it's like anyone who thinks that being the buyer at these kinds of prices in a very late stage IPO of what amounts to a relatively mature company, when you look around the poker table and wonder who the sucker is, it's you. Not because it's a bad business, just because what's happening is this is not a financing event anymore. They're not raising money for anything. I think what's really going on is people are unloading shares. They're unloading shares on retail investors and on quick flip institutions who are able to back in and out. So you have to look at it accordingly and realize that this is really what they're saying is this seems like a good time to get out and I'm an insider and I want out.

11:25Is your view that if they stopped training, and just so everyone knows the difference. I mean, the training is the building the models, it's creating these advanced frontier models. The inference is just running them, just operating them. Is it your view that if, because this is something that I do hear from AI people that don't worry if we just flip the training switch and just say, okay, we're not going to spend money on this anymore, then we have a great business. Is that your view that if you do that, if you get rid of the training costs, you just focus on inference, then actually these are sustainable business models that work?

11:58No, it's a trap I'm laying out for them. It's actually catastrophic for them if they do that. So what happens when they do that is they then become basically solar panel manufacturers who are trying to compete with China, and China crushes them with cheaper power and vastly larger industrial token production than these frontier companies could ever cope with. So they're caught between a terrible place where to protect their so-called moat, they have to spend profligate amounts on training. But if they don't spend landmatch on trading, and now it looks like they could be cash flow positive on inference, well, now they're into sort of industrial token production, no different than industrial photovoltaics or industrial EVs.

12:35And now you're up against this colossus called China who wins that game over and over again and is already setting the floor in terms of token prices. So you're in an impossible situation that if you don't keep training, you have no moat. if you do stop training, you're crushed by the sort of the industrial production of tokens coming out of China. Well, then what are the potential futures for Anthropoc and OpenAI if they have to continue burning tens of billions of dollars on training? But if they stop doing that, then suddenly they get crushed by China. I mean, is it your view that there is no way that this works out for either of them?

13:12No, I think they become like Ferraris. So I think they become like the performance end of the marketplace. So you're up against Honda and Toyota and everyone else. You might want to pretend you can be a mass market manufacturer, but you're not. You're going to be squeezed and squeezed and squeezed out into the so-called performance end of the market, no different than, you know, a Ferrari Testarossa's great cars or a Bugatti Veyron or something like this. By all means, make those, but don't imagine that you're going to be selling them at the sign of scale that you might have when you started off as a non-performance manufacturer.

13:42That's the battle they find themselves in, and they're really reluctant to concede it, but they're going to be pushed increasingly into that corner of the market and marginalized. The risk disclosures here, we haven't actually seen them, but it sounds crazy. Well, it's like a third of the document. I'm old enough to remember when two pages of risks were a lot of risks in an S1. So to have one third of what's being characterized as a very long S1, that's nuts. Well, you've got to go through all the ways in which humanity is going to end. And of Of course, that is a centerpiece of this S1. Have you ever seen anything like this?

14:16A company saying, invest in our company, we're going to be a great business, but by the way, we might destroy civilization. I wish I had because it would make it more entertaining. I could compare it to them and say what the multiple is on their version of apocalypse versus anthropics. But no, it's never happened before. And it's so wildly unusual that you get the cynical response that it must be marketing. It's not marketing. Dario believes this. and he thinks he's being responsible in saying it. And so it's not somehow that they think they can out-apocalypse the next guy, which is like winning some kind of strange dystopian benchmark.

14:47It's not. They're not trying to win a dystopian benchmark. They're literally trying to characterize the risks in the business. And the trouble is, people read S1s. And when they read it, and you saw this with the state of Florida this week, then they say, hey, wait a minute. You're telling me that this business that you're taking out on the public markets is potentially, you know, very dangerous for us as a society, and yet we're supposed to countenance the issuance of shares in this regulated SEC marketplace. I'm not having any of it. So I expect a litany of lawsuits over it for exactly this reason.

15:17It'll be a nonstop parade no matter what goes wrong because they've already warned people that this is what's coming. So when it comes, everyone's going to be queued up at the start line for the lawsuits. Final question. The IPO is set to happen in November after the midterms. What do you expect from this IPO? would you expect that it'll be at least an initially successful IPO? Or what are your predictions for when this thing goes out? Assuming it happens, I actually have a standing bet that it doesn't happen in this part because I think the U.S. is going to be something like a banana republic with no SEC at all after the midterms.

15:50I think we'll be in this crazy, you know, who's who hid the votes world. But anyways, assuming it happens, you're seeing all the signs now that money's being pulled out of other things to be redirected into Anthropic. And I've been following this for some time, but the latest example was the Aura IPO. One of the reasons why all of these other things are being starved for capital is because large institutional investors do not have printing presses in the basement. They have to sell other things to have cash to buy the new thing. And so what's happening is cash is flooding out of other things. You have to think of it like, you know, the tide receding before a tsunami.

16:22It's all going out and it's all going to be redirected there. So the money's there to support it if they can make it go out, but the dynamics around it are terrible. So I'd expect, you know, it comes out when it comes out and it's successful for, you know, sort of in a SpaceX sense of successful. And then we have the immediate slide lower. Paul Kudrosky is managing partner at SK Ventures. Paul, we really appreciate your time. Thank you. Yeah, great being here. After the break, Aura shelves its IPO. And we have some exciting news. We've been nominated for three Signal Awards. Please vote for us at vote.signalaward.com.

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18:50We'll be right back.

19:01We're back with Prof G Markets. Aura has hit pause on its IPO. As we covered a few days ago, the smart ringmaker was supposed to start trading this week and planned to raise up to$2.2 billion. Reportedly, the order book was about four times oversubscribed. The company's S1 showed that Aura is profitable and that it expects revenue to grow 90 % this year. But still, that wasn't enough to ring the bell. The company pulled the plug yesterday, citing, quote, uncertainty in the IPO market. In a statement, CEO Tom Hale said that, quote, we aim to deliver an extraordinary IPO for our employees and investors, and we have the luxury of choosing our moment.

19:43But the company did not give a new date for its future offering. Aura is now the third company this month to halt its IPO plans. Meanwhile, as we just discussed, Anthropic is preparing for what could be the largest IPO of all time. But investors are now left wondering, is the IPO market all right? Here to break this down, we're speaking with Jay Ritter, director of the IPO initiative at the University of Florida. Jay, thank you so much for joining us on ProfG Markets. So Aura has delayed its IPO. They are saying that the market conditions are not great. What do you think the problem actually is here?

20:23There is some merit to being concerned about market conditions. Even though stock markets are near all-time highs, whether we're looking at the S &P 500 or NASDAQ, as you just mentioned, this is not the only prominent company that has recently decided to postpone its IPO. So some investors have concerns about the company's valuation. These are good companies, whether we're talking about Aura or Holtec Nuclear or Bamboo Insurance. You know, good, solid companies, mature, substantial revenue. But there's a price at which a great company is not a great investment. What exactly? Because you study IPOs very in depth.

21:17What exactly is a company looking for when they go out to the public markets? Because as you said, I look at this market. Yeah, there are risks, but there are always risks. And it's up 12 % year to date. It's a pretty healthy, strong market at the moment, at least it seems. But they say that this isn't the right moment. What exactly is a company looking for when they go public? They're looking for liquidity and raising capital. and possibly a currency for making acquisitions. As a public company, you can do a stock-for-stock deal to acquire another company. Now, here the company is not burning cash.

22:00Unlike Anthropoc, where they have a huge cash burn rate, the company does have the luxury of not going public because it's not needing the cash. But I think with a lot of companies, they get lofty expectations about what their value should be. And institutional investors who are looking at it are worried, could this be the next GoPro or Peloton or a company that never did go public 11 years ago? Sol Cycle was also a rapidly growing company that was about to go public and postponed going public. They never have gone public. But all of these can be viewed as kind of one-trick ponies where they were growing rapidly but are going to be hitting a wall in terms of growth, like with GoPro.

23:08A lot of people who wanted the GoPro camera bought it already, and they don't wear out immediately. They don't need to be replaced, and the market was not exploding with continued growth. And I think some investors have the concern here with the Oura Ring. Well, they've got a great product, but it's not as if there aren't any competing products for personal health measurement. And just how big is the market? How profitable is it going to be? It doesn't have the upside of a company like Anthropic. Do you think that when they were showing this to investors and doing the roadshow and shopping this around, Do you think maybe they were hearing that from investors and that has led to the reasoning for pulling the plug on this thing, that maybe investors were telling them, well, what if you're a GoPro?

24:05What if you're a Peloton? What if you're a SoulCycle? Do you think it is reflective of investors telling them, we don't buy this thing? Or perhaps could it have been something else? Not every potential institutional investor is the same. Some were more skeptical than others, I'm sure. Companies, even before they start the roadshow, typically test the waters. They talk to potential institutional investors, sometimes over a period of many months, sometimes even longer than that if they've done some private funding rounds. But they don't always get truthful feedback from those investors. Because, you know, let's say a company, hypothetically, is talking about an$11 billion valuation.