Anthropic’s Financials Revealed — The Losses Are Stunning

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 [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 0:01Speaker 00

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• 1:50Speaker 02

  Money markets mad.

• 1:51Ed Elson?

  If money is evil, then that building is hell.

• 2:00Ed Elson?

  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 Turner, is planning to slim down the company.

• 2:37Ed Elson?

  Okay, what else is happening? Anthropic's 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. Anthropic 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,

• 3:20Ed Elson?

  making it the most highly valued IPO of all time. Joining us to discuss Anthropic's financials, or at least what little we know, we are speaking with Paul Kudrowski, managing partner at S K Ventures. Paul, great to see you. Thank you for joining us. I heard some of your laughter as I went through the numbers.

• 3:43Ed Elson?

  We've finally got some numbers. And to be clear, these are 2025, but what do you make of them?

• 3:48Speaker 04

  Honestly, most of those numbers, in one form or another, had already leaked, and we can go through them one at a time. But I'll state 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 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.

• 4:33Speaker 04

  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, 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, and the second is how representative these early customers are of later customers.

• 5:15Ed Elson?

  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?

• 5:50Speaker 04

  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 OpenAI has leaked, Anthropic has leaked, 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 in my analyst days, as earnings before bad things. If you let me get away with characterizing my earnings before bad things, my earnings look really good.

• 6:35Speaker 04

  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 and 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 nevertheless, we're going to see a lot of E B B T, earnings before bad things, coming up here.

• 7:15Ed Elson?

  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.

• 7:30Speaker 04

  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.

• 7:35Ed Elson?

  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.

• 7:56Speaker 04

  Less material than the training costs, but still consequential. I agree.

• 7:59Ed Elson?

  Still consequential. I mean, how profitable, 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, I'll just focus on Anthropic, right now in 2026, what would you say the profitability picture probably looks like, given all of those questions?

• 8:24Speaker 04

  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 that it's 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 of running the business, which is to say, training costs and 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

• 9:09Speaker 04

  not a part of the business going forward? Because I've sometimes 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 Wall Street's going to give them a wake-up call on that.

• 9:36Ed Elson?

  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

• 9:56Ed Elson?

  The ultimate accounting mismanagement that people cite often is WeWork, 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 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?

• 10:20Speaker 04

  So I think the community adjusted earnings was 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.

• 10:40Ed Elson?

  So $2 trillion, given the numbers that we know, you think that's overvalued?

• 10:47Speaker 04

  Well, it's a ridiculous price. And 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. 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.

• 11:28Ed Elson?

  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?

• 12:01Speaker 04

  No, 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 that much on training, and now it looks like they could be cash flow positive and inference, well, now they're into industrial token production, no different than industrial photovoltaics or industrial EVs. And now you're up against this colossus called China,

• 12:43Speaker 04

  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 industrial production of tokens coming out of China.

• 12:57Ed Elson?

  Well, then what are the potential futures for Anthropic 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?

• 13:15Speaker 04

  No, 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 under the so-called performance end of the market, no different than Ferrari Testerosus, 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. 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.

• 13:52Ed Elson?

  The risk disclosures here, we haven't actually seen them, but it sounds crazy.

• 13:58Speaker 04

  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.

• 14:08Ed Elson?

  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 saying, invest in our company, we're going to be a great business, but by the way, we might destroy civilization?

• 14:26Speaker 04

  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 Anthropic. 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 S1s. 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,

• 15:09Speaker 04

  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.

• 15:30Ed Elson?

  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?

• 15:44Speaker 04

  Assuming it happens, I actually have a standing bet that it doesn't happen, and it's part because I think the US 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, 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 the tide receding before a tsunami. It's all going out, and it's all going to be redirected there.

• 16:28Speaker 04

  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 sort of in a SpaceX sense of successful, and then we have the immediate slide lower.

• 16:40Ed Elson?

  Paul Kudrowski is managing partner at SK Ventures. Paul, we really appreciate your time. Thank you.

• 16:46Speaker 04

  Yeah, great being here.

• 16:47Ed Elson?

  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. Type in profty markets in the search bar, and you'll find us. We'll also leave a link in the description.

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• 19:39Ed Elson?

  We'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." But the company did not give a new date for its future offering.

• 20:24Ed Elson?

  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 Prof G 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?

• 21:01Speaker 04

  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 Aura or Holtech Nuclear or Bamboo Insurance. Good, solid companies, mature, substantial revenue.

• 21:44Speaker 04

  But there's a price at which a great company is not a great investment.

• 21:50Ed Elson?

  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?

• 22:18Speaker 04

  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, 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.

• 22:54Speaker 04

  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? SoulCycle was also a rapidly growing company that was about to go public and postponed going public. They never have gone public.

• 23:33Speaker 04

  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.

• 24:17Speaker 04

  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.

• 24:26Ed Elson?

  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? What 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?

• 24:54Speaker 04

  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, let's say, a company hypothetically is talking about an $11 billion valuation,

• 25:34Speaker 04

  and an investor thinks, well, 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 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 that's going to be held against them when it comes to getting shares.

• 26:12Ed Elson?

  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 Aura will ever go public?

• 26:31Speaker 04

  Historically, the majority of companies that have paused their IPOs have never gone public. Some, like SoulCycle, get acquired, sometimes at a good price, sometimes at more of a fire-sale price or conservative valuation. What's difficult for companies is to execute the business model. Stuff happens. A company can be firing on all cylinders, but competition comes along or the demand evaporates, sometimes for things outside of its control.

• 27:14Speaker 04

  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.

• 27:53Ed Elson?

  Yes, that does seem to be the pertinent question. Jay Ritter is Director of the IPO Initiative at the University of Florida. Jay, we really appreciate your time. Thank you.

• 28:05Speaker 04

  My pleasure.

• 28:11Ed Elson?

  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 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.

• 28:57Ed Elson?

  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 recognise 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

• 29:40Ed Elson?

  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 "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

• 30:21Ed Elson?

  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 NEETS 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 metaphor for a larger issue in our modern society,

• 31:02Ed Elson?

  and that is that 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.

• 31:16Ed Elson?

  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 Shalon, Kristin O'Donoghue, and Mia Silverio, and our social producer is Jake MacPherson. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.

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