Better Offline - Monologue: Annualized Revenues Are BS

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Starting point is 00:00:21 All-Zone Media. Hello and welcome to this week's Better Offline monologue. I'm your host, Ed Zetron. And 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,

Starting point is 00:00:55 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, and 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.

Starting point is 00:01:34 a month. And God, that term annualized is a tricky one. Also, by the way, they made over $70 billion on a zero, so $13 billion of annualized revenue is actually not that much. But anyway, the term annualized is a really tricky one. When 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

Starting point is 00:02:18 a one box in July, that means I have $1,200 in annualized revenue, which doesn't quite sound so good. My 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 an 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. Here's the thing. 12 billion dollars in annualized revenue

Starting point is 00:03:06 means $1 billion in revenue in one month, which is genuinely a milestone, kind of impressive. At least it would be if Open AI 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 Open AI was up $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 about $458 million in the month. But that doesn't mean that they're going to hit $12.7 billion. In fact, best case scenario, this means that Open AI 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.

Starting point is 00:03:53 So anytime you see annualized revenue, you should immediately be suspicious of whoever is leaking it. Open AI 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 $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 bugger's with this figure is, of course, Anthropic, who have leaked so far this year every single month of, every single month other than April. It's kind of crazy. And they, but they started in January when they leaked that they'd hit a billion. in annualized revenue, and then they're $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.

Starting point is 00:04:39 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 math, you can, billion dollars of ARO would be $83 billion, $1.4.16, $1.66. Then May would be $3 billion annualized. So it would be $250 million. And 4 billion ARR would be $333 million. I'm saying this for the person that emails me is like,

Starting point is 00:05:09 what are the numbers? Anyway, these are obfuscations. These are intentional. Anthropics 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. Yet I saw a Bloomberg reporter. Love you, Ed. but saying maybe they'll hit $9 billion in annualized revenue this year.

Starting point is 00:05:31 That's an absolute joke. Open AI barely hit that and they have all the... It's just, 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 this year. That's not... They're not even to the lofty goals they have. They're not even halfway there.

Starting point is 00:05:55 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 $8 to $15 billion this year. And that's after revenue. And Anthropic, I think they're $3 to $5 billion. 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 $5 billion from the bonesore 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 of the remaining, well, 30 billion that they actually have to raise with SoftBank covering 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.

Starting point is 00:06:59 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 AI is going to make so much bloody money. Oh, Anthropics going to do that too. And it sucks. It sucks because 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.

Starting point is 00:07:31 And yes, there are going to be people that say, well, the revenue's going up. That means things are going well. 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 those. Now, as I'm saying, is 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

Starting point is 00:07:57 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 ARRs.

Starting point is 00:08:14 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 of what happens what's actually happening. Another podcast from some SNL late night comedy guy, not quite. Unhumor me with Robert Smygel

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Better Offline - Monologue: Annualized Revenues Are BS

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