The Information's TITV
00:22:09 · Stephanie Palazzolo, Akash Pasricha
[00:22:09] S3: Yeah. So it is unclear what is kind of going on behind the scenes. I will say that not being able to raise the full amount that you went out to raise is never really a good sign. You know, like I think in an ideal world, in an ideal world, you would want the round to be oversubscribed so that you have too many investors actually like trying to get in. I do think like a major dynamic that's going on here is that, you know, Anthropic is, about to go public. It's, you know, releasing its financials in its S1. It's putting its numbers out there. And to be honest, those numbers are really, really good, not just revenue growth, but also margins as well. I think a lot of people were very pleasantly surprised at the Anthropic numbers from last week and just how efficient they have been able to be with running and training these driving models. And, you know, we, we don't know the exact figures for OpenAI, but if they are not as good as Anthropic's, even if they are, you know, objectively pretty, pretty good, that's definitely gonna put a bit of a damper on the round and make it a very easy comparison for people to look at OpenAI's numbers and then look at these literally public figures from Anthropic and kind of do the apples to apples comparison. [00:23:20] S0: Right. And they'd get liquidity faster too because you could buy some Anthropic and it'll go public. Whatever it is, six month delay, even lockup will expire a lot quicker. In a world where everyone's talking about bubbles, it's easier to get your money out faster.
00:23:20 · Akash Pasricha, Stephanie Palazzolo
[00:23:20] S0: Right. And they'd get liquidity faster too because you could buy some Anthropic and it'll go public. Whatever it is, six month delay, even lockup will expire a lot quicker. In a world where everyone's talking about bubbles, it's easier to get your money out faster. [00:23:37] S3: Right now is a very high risk time to invest in OpenAI, right? This is probably going to be the last round before it goes public. So you have kind of limited upside because you don't really expect there to be like a massive valuation jump between, you know, the pre IPO round and the company going public. If Anthropic's numbers are better, then there's a good chance that the OpenAI IPO may not be this huge blockbuster event that will make people tons and tons of money and a huge return on their investment if they got in at whatever, you know, 1,200,000,000,000 price or whatever the most recent round is. So I think it's, it's a very high risk situation. And I think a lot of investors are just trying to play it safe right now and maybe not invest in this round. [00:24:25] S0: Right. Speaking of Anthropic stuff, so we got Anthropic's amended S1 out this morning. Did you get a chance to look at it? What should we be paying attention to here?
00:24:38 · Stephanie Palazzolo
[00:24:38] S3: Yeah. So, I mean, I think there's two things that jumped out, one of which we have already written about, but that is that the revenue growth from Q2 to Q3, although impressive, it has begun to slow a little bit. And so I think that's an interesting signal for this company that has obviously had insane revenue growth over the last year that maybe things are starting to taper out. Maybe it's facing more competition from OpenAI models or for people looking for cheaper models. But I think the other big update was that Anthropic disclosed its future, compute commitments, which were almost, you know, almost $900,000,000,000 obviously a huge number. And half of that is going to come after, you know, either in 2031 or after. So not only have they committed to a huge dollar amount of compute, but a lot of that is going to be coming, you know, five plus years in the future. And so that really does, I think show just, I don't know, I think it might lead some investors to be a little worried just in terms of like, we don't know necessarily where AI is going to be in five, you know, five, six, seven, eight, nine, ten years. And the fact that they've committed to so much compute so far out is a little worrying, especially because of this dynamic, right, where Anthropic's revenue, it's not these five year commitments that customers are signing. It's usage based. And, you know, we were just talking about how Anthropic and OpenAI are having trouble getting customers to commit to, you know, bigger year long commitments. So you have this dynamic where revenue and compute, which is their largest expense are not really, operating on the same kind of like patterns, if that makes sense.
00:26:20 · Akash Pasricha, Stephanie Palazzolo
[00:26:20] S0: Right. [00:26:21] S3: Other interesting thing on, on, on compute is that, there's been this narrative of the past year or two that Anthropic has been super compute constrained because they were not as aggressive as OpenAI was in, you know, making these really big compute deals early on. And so we could really see this in the S1 because they had to do a lot of, you know, short term commitments this year, especially in this third quarter. So they spent $6,500,000,000 on compute this year under short term commitments, but actually $5,000,000,000 of that came in Q3 alone. So that just really goes to show like, you know, when you don't plan ahead and you just need compute to either train model or just meet customer demand, That compute, if you need it in a short time period, is going be really expensive. And that's a big reason why Anthropic actually swung from making a pretty big operating profit, almost a billion dollars, to over a $500,000,000 operating loss, in Q3. So that obviously had a quite a big effect on its profitability for the third quarter.
00:27:27 · Akash Pasricha, Saanya Ojha
[00:27:27] S0: Right. Well, I love it when, we get you on breaking news because I always think it gives us a preview of maybe what we can expect in tomorrow's newsletter, but we'll have to wait and see what tomorrow's AI Agenda is all about. Stephanie, I want to thank you for coming on. That is Stephanie Palazzolo, author of our AI Agenda newsletter, here at The Information. Reddit stock tanked last week after the company said that search traffic was down more than 1,000,000 referrals per week on average. Bain Capital Ventures, Saanya Ojha, wrote a good column on that last week. I want to bring her on to share more of her thoughts. Saanya, welcome to the show. It's great to have you back. [00:28:07] S4: Yeah, gosh. Always a pleasure. [00:28:09] S0: Okay. Look, Reddit revenue, still over 50 percent. And yes, it's forecasting that it will decelerate in the current quarter, and it's a couple straight quarters here of deceleration. But the big news here was the search traffic. Walk us through exactly what the company said and what your reaction was to it.
00:28:31 · Saanya Ojha
[00:28:31] S4: Yeah. I mean, the quarter itself was pretty remarkable. I mean, they're hugely profitable, growing really well, 45% EBITDA margins, throwing off cash. Things are looking good. I think the market always reacts to their vision of the future and not really the quarter that was. And so that's what the 30 drop was. Very obviously, the CEO came out and said, Google has changed its relationship with the rest of the internet and we're not getting as much search traffic as we used to. Now, that's a death knell for a lot of companies. Let's hope Reddit survives it. I'm personally biased in favor. Because so much of how people find these websites is they will put in a search on Google. A Reddit link will show up and then they'll go click on it and Reddit gets a user. The user gets their answers. Google facilitated the interaction. Everyone's happy, but obviously now that we have AI overviews and AI mode, that's not how people work anymore. The interaction model for the web is fundamentally changing. And what that means is Google can still get all the information, surface it to the customers, but it's not a link anymore. It's a synthesized answer. And customers are satisfying what they need from that generated summary and never going to the underlying website. And what that means is you lose your biggest source of traffic. And Reddit CEO very quickly and very, I think easily flagged it, that not only them, but everyone else in the internet ecosystem is facing the same quandary. And I would actually argue Reddit has One of the better chances of survival because people know it as a standalone entity. But if you think about a whole world of websites that are travel blogs and recipe websites, etc, that don't have that individual identity, I think the traffic is just going to get sucked right out of their arena.