Prof G Markets - Anthropic’s Financials Revealed — The Losses Are Stunning

Episode Date: September 30, 2026

Ed Elson is joined by Paul Kedrosky to break down the biggest takeaways from Anthropic’s S-1. Then, Jay Ritter joins the show to discuss why Oura delayed its IPO and what the decision says about the broader IPO market. Finally, Ed shares his take on the news that Manchester City was found guilty of financial violations. Paul Kedrosky is the Managing Partner at SK Ventures. Jay Ritter is the Director of The IPO Initiative at the University of Florida. Vote for Prof G Markets at the Signal Awards here  Subscribe to the Prof G Markets Youtube Channel  Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [e-mail] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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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 Turnus, is planning to slim down the company.

Okay, what else is happening? Anthropics IPO prospectus just leaked, and the numbers are staggering. According to Reuters, which obtained the draft of the S-1, 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. Anthropic devoted almost a third of the S-1 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. Joining us to discuss Anthropics financials, or at least what little we know. We are speaking with Paul Kedroski, 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, 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 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. You 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 of whatever you want to call it. That's 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. And one of the things you always have to watch with young companies, well, it's strange to say to 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 industrial 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. and 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 operating. Granted, it's from last year, but what are your takeaways from that number and how important is it when valuing this company? It'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 one open AI has leaked, and Throbic is a leak. They now all say that on an inference-only basis, they're already cash flow positive in the last couple of quarters. And so, but that's going to be the debate, right?

It's this old joke, we used to call it when I, in my analyst days, it's 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're things that they're 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. That'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 the last, 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. It'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, all 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, 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 is cash flow positive as it currently stands on an inference only basis. What those numbers look like. We've seen numbers suggested that it could be as high as a couple of billion dollars in positive cash flow just from inference alone,

but that's purely speculation, and they haven't released it. So we don't know, but 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 and some of the other,

I'll say more circular revenues, that 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? Because I've sometimes argued that the first front-year 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 Wall Street's going to give them a wake-up call on that. Let's assume that they are stripping out the training costs. That's part of the bad things, and they're reporting the earnings before that bad thing. How bad, in your view, of an accounting gymnastic move,

do you consider that to be? I mean, the ultimate sort of accounting mismanagement that people cite often is we work, where they invented this community-adjusting. EBITDA, which a lot of people said was the most ridiculous. And we know how that went. It didn't work. It was a disaster of an IPO. 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?

So 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, 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? 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. And 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.

Because 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 Quickflip 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. Is 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? No, it's a trap.

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 landmage on training, and now it looks like they could be cash flow positive an inference. Well, now they're into sort of industrial token production, no different than industrial photovoltaics or industrial, you know, EVs. And now you're up against, you know,

this, this, this, this, this, this, this, this, uh, 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 start training, you're crushed by the sort of the industrial production of tokens coming out of China. Well, then what are, what are the potential futures for Anthropics? an open AI. 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? No, I think they become like Ferrari. 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 under the so-called performance end of the market, no different than, you know, Ferrari testeroza, great cars or 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. That'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 course that is a centerpiece of this S1. Have you ever seen anything like this? A company is 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 be. make it more entertaining. I can 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. It'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 S-1. When they read it, and you saw this with the state of Florida this week, and they say, hey, wait a minute, you're telling me that this business that you're taking out on the public markets is potentially 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. It'll be a non-stop 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 as part because I think the U.S. is going to be something like a banana republic with no SEC at all after the midterms. I think we'll be in this crazy, you know, who's who hid the votes world? But anyway,

It's 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 ORA IPO. One of the reasons why all of these other things are being starved for capital is because large institutional investors, you know, 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 is cash is flooding out of other things.

You have to think of it like, you know, the tide receding before a tsunami. It's all going out. and it's all being 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 it comes out when it comes out and it's successful for, you know, sort of in a space-sex sense of successful,

and then we have the immediate slide lower. Paul Kodroski is managing partner at SK Ventures. Paul, we really appreciate your time. Thank you. Yeah, great being here. After the break, ORA shelves its IPO. And we have some exciting news. We've been nominated for three Signal Awards.

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ORA has hit pause on its IPO as we covered a few days ago. 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 S-1 showed that ORA 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. extraordinary IPO for our employees and investors, and we have the luxury of choosing our moment, but the company did not give a new date for its future offering. Orra 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 Profi Market.

So ORA has delayed its IPO. They are saying that the market conditions are not great. What do you think the problem actually is here? There 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. Some investors have concerns about the company's valuation. These are

good companies, whether we're talking about ORA or Holtek 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, what 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. You know, unlike Anthropic, 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 that 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, Soul 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. A 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 aura 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 Anthropical. Do you think that when they were showing this to investors and doing the road show 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? What if you're a Peloton? What if you're a soul cycle? 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, you know, 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. And an investor thinks, well, you know, I'd be willing to pay a price that reflects $8 billion. but if I tell the company that bad news, when it comes to getting shares in the IPO, the company might hold that against me. So I don't have an incentive to tell them you're not worth $11 billion. And so, you know, some investors who really do think it's worth $11 billion might be cheerleaders and those that are more skeptical might not be willing to fess up because they're afraid

that's going to be held against them. them when it comes to getting shares. You mentioned SoulCycle, this idea that they make a plan to go public, then they decide not to do it, and then they never go public. Is that a common occurrence when companies pause their IPOs and follow-up question? Do you think that ORA will ever go public? Historically, the majority of companies that have paused their IPOs have never gone public. Some like Soul Cycle get acquired, you know, sometimes at a good price, you know,

sometimes at more of a fire sale price or conservative valuation. You know, what's difficult for companies is to execute the business model. You know, stuff happens. A company can be firing on all cylinders, but competition comes along or the demand evaporates, you know, sometimes for things outside of its control. Nobody can foresee the future with certainty. But given the track record of companies that have postponed their IPO, where most of the time they never do go public, that's the most likely outcome here. If they continue to execute, this might be a good decision. They might wind up being able to go public

at an even higher valuation a year or two from now. But who knows, it could be like the autumn of 2007, where if you waited a little longer, you might have had to wait for many years. Yes, that does seem to be the person in question. Jay Ritter is director of the IPO initiative at the University of Florida. Jay, we really appreciate your time. Thank you.

My pleasure. Let's take a break from the world of IPOs and dive into the world of sports, or more specifically, sports fraud. Manchester City, the most successful Premier League football club of the past 15 years, was just found guilty of mass financial fraud that spanned the past, wait for it, 15 years. Yes, the Premier League just confirmed that between 2009 and 20 years, 2018, Manchester City misrepresented their financial statements to the tune of £900 million. They were also found guilty of issuing sham contracts that allowed them to skirt around the Premier League's financial regulations and ultimately allowed them to spend more money to buy top-class

players than they were actually allowed. The findings are a massive indictment of the integrity of English football, as over the course of their scamming, Man City secured not one, not two, not three, but eight Premier League titles, which made them one of the most successful clubs in Premier League history. But now, it isn't clear if any of that success was actually credible. Yes, their dominance on the pitch was remarkable, but if the company's owners illegally bought their way to that success, then why should we recognize any of it at all? I ask this question not just because I am a Chelsea fan, but also because it is extremely relevant to our time. Financial corruption has become a pervasive issue everywhere, not just in football.

Whether it's the financial corruption we just witnessed with another sports team in the Los Angeles Clippers, or the financial corruption we have witnessed on Wall Street, or the financial corruption we are increasingly witnessing in Washington. From Donald Trump to Manchester City, every quote-unquote successful person today seems to end up being a fraud. Now, that is obviously a problem in and of itself. Fraud is illegal, and it usually involves taking advantage of someone, but it's also a problem for another reason. And that is the more that we see how our system rewards fraudsters, the more we will distrust the system itself. In the case of Manchester City, that might mean that people just stop watching football. Why follow the beautiful game if the beautiful

game is rigged? But in the case of Trump and financial markets, it means no longer wanting to participate in the US economy. There is a reason why half of young people today disapprove of capitalism. There is a reason why the number of needs in America, people not in education, employment, or training is on the rise. It is because they believe

that the system itself is rigged against them, and in many ways, it is. The Manchester City scandal is a 900 million-pound metaphor for a larger issue in our modern society, and that is that two men are, too many winners are cheating their way to success. The more they win, the more we lose. The question is what we want to do about it.

Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Chalon, Kristen O'Donohue, and Mia Silverio, and our social producer is Jake McPherson. Thank you for listening to Prof G Markets from Profg Media. If you liked what you heard, give us a follow.

I'm Ed Elson. I will see you tomorrow. Advertising on Spotify puts your brand in the moments where Gen Z fandom takes shape. They're 35% of our audience and spend two hours building rituals and shaping culture with every stream. Download the Culture Next Report to discover trends and insights that will inspire your next campaign.