Prof G Markets
00:06:21 · Ed Elson, Josh Brown
[00:06:21] S3: I totally agree with you. I think that the increase in sales has been remarkable. The thing that people are saying has not been remarkable or has been a problem on the revenue side. I'm more worried about the profitability side, which we'll get into. But the... On the revenue side, some point out that in q three, the growth significantly slowed. I think it slowed to something like 40 to 50%, which sounds ridiculous because that's already a huge number. [00:06:46] S4: It has to slow. You you can't write. So, Ed, you're right. [00:06:50] S3: But investors are worried about this because the assumption, I think, for a lot of them has been that 1300% is going to continue not forever, but at least for the next several quarters, perhaps the next year or so.
00:06:50 · Ed Elson, Josh Brown
[00:06:50] S3: But investors are worried about this because the assumption, I think, for a lot of them has been that 1300% is going to continue not forever, but at least for the next several quarters, perhaps the next year or so. [00:07:03] S4: I'm gonna disagree. I don't think investors are worried about it. I think it's almost guaranteed that you can't 16x revenue twice. Like Like we understand, because if you... This is the exercise where you place a grain of rice on a chessboard and then two on the next square and then four on the third square and then eight and sixteen. We all understand that company is not going to, in its life as a public company, do 1600% growth. So I think what investors are more worried about, and maybe this is the more reasonable bear take on Anthropic and AI in general, is the stickiness of the platform and the durability of that revenue more so than the growth rate. Like let's take what you just said, 40 to 50%. If they go public and they come out and say, We think we're gonna grow 40% to 50% a year on like a CAGR of 40% to 50% for the next five years, think everybody would be okay with that kind of guidance, not that they're giving it. [00:08:10] S3: Agreed.
00:08:10 · Ed Elson, Josh Brown, Scott Galloway
[00:08:10] S3: Agreed. [00:08:10] S4: The bigger issue is how easy is it for the next model that's 10% more powerful or advanced to snatch away those customers and those workflows? To me, if you're gonna worry about something, it's not the headline growth rate no longer being 1300%, 1600%. To me, that's the concern, is there a moat? Is there a moat? And I wish I could tell you definitively one way or the other, but that's the thing that might give me pause in saying, yeah, you're right, this company's worth $2,000,000,000,000 right off the bat. [00:08:45] S3: What do you make of the profitability side? [00:08:48] S4: Well, there isn't any. [00:08:52] S0: There's that side. It's the dark side of the moon, Ed.
00:08:52 · Scott Galloway, Ed Elson, Josh Brown
[00:08:52] S0: There's that side. It's the dark side of the moon, Ed. [00:08:57] S3: Well, the... It's it's it's a little less nothing than than perhaps some people thought. At least, you know, I was thinking that we would see on the income statement, you know, several billions of dollars in losses, on a quarterly basis or or or in the in the first six months. And what we saw was a nearly $700,000,000 net loss where... Or operating loss at least. We're gonna set aside the $80,000,000,000 because that doesn't tell you anything that's associated with the value of the company going up. But nearly $700,000,000 in operating losses, which I thought was narrower than than I had expected. However, there was the other problem, which I'd like to get a reaction to, which is that we also saw further down the document that they have signed up to spend $800,000,000,000 on compute purchasing agreements at some point. And we don't really know how long over what time frame that's gonna be spread out. But to me, I'm like, oh, this profitability thing, which seemed like it was trending in the right direction, might actually be a total red herring because we're not seeing the truth. [00:10:04] S4: Respectfully, I have to interrupt because I think you have it wrong. [00:10:07] S3: Okay. [00:10:08] S4: The headline number that hit Twitter immediately, of course, is 80,700,000,000. And as has been extensively reported, I don't have to get into like all the details, that is due to the way that they have to report the financing of their expenses in a certain way.
00:10:08 · Josh Brown, Ed Elson
[00:10:08] S4: The headline number that hit Twitter immediately, of course, is 80,700,000,000. And as has been extensively reported, I don't have to get into like all the details, that is due to the way that they have to report the financing of their expenses in a certain way. [00:10:27] S3: I think that's stupid.
00:10:29 · Josh Brown
[00:10:29] S4: So... And that includes that $9,000,000,000 in compute figure. And just the way they account for that, the operating loss is the thing that people in New York or people that are managing money are more focused on. And that number, $693,000,000 down from 2,100,000,000 a year earlier. That is the more important number. And actually, ironically, Warren Buffett is instructive here. Huge Anthropic fan. No, I'm just kidding. Warren Buffett spent decades telling investors to focus on book value. He said, My job as the chairman of this company is to grow the nominal book value per share number. And then like eight or nine years ago, he said, Throw it out. It's the stupidest thing because of new accounting rules. All right, so let's say Berkshire Hathaway invests in plants and equipment, or they acquire something and the value drops, they have to write it down, like based on the accounting rules, which is a hit to book value. But then if that thing that they had previously written down increases in value, you don't get to write it up. There's no such thing. So it makes the exercise of focusing on book value almost nonsensical. And so he switched from that metric to other metrics that he then said, this is actually... So he focused more on things like cash flow. So with an Anthropic, it's not that we should ignore any number that looks bad if we wanna be constructive. That's not what I'm saying. I'm saying like the most bombastically negative numbers are gonna be the ones that they put on the cover of the newspaper or on the news. And of course, then the nuance is discussed. But in today's day and age, nobody reads articles. We read headlines and we react to headlines. So I think like, let's just be like a little bit fair and say this company understands that a certain point profitability will be expected.