Anthropic’s enterprise revenue still has room to scale

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 26:21

   So that was section one, which is you always read the risk factors first. Get a sense of what is management concerned about. So again, the takeaway is management is concerned really only about compute. This is a compute problem. Okay, the next thing that I always look at is I look at the revenue side of the ledger and I try to understand what kind of business they have. And this is an incredible, incredible business. Exactly what Freeberg said. Why? Because at the growth that they have and the revenue that they have, they have barely scratched the surface of the commercial working world.

2. 26:55

   And so this is a little bit more of a nuanced chart, because what it does, it starts to really break down what we think the revenue stratification is by customers inside of Anthropic. So there's about 40 million individuals and small businesses that are spending under 100k, 40 million. Then there's about 10,000 that spend between 100 and a million. There's about 1650 that spend between one and 10 million, and only 250 customers spend 10 million and more. So to your point, I think what Freebrook said is right, the setup is, is that these folks can negatively churn into these existing customers and grow and attract new customers at an incredible rate, which I think is just crazy and so this allows me to think about what is the upper bound of revenue and you know you don't need to get to 100% of what's possible you need to get to 25 or 30% and then you need

3. 27:57

   to have a reasonable distribution of negative churn assumptions. And what you start to see is that this can be a very large revenue business in the hundreds of billions of dollars in sort of this three to seven year timeframe. Now, what slows that down? As far as I can tell, and this is more me putting the 80-90 hat on, the reason why you have so much traction in the million and under is when a company gets large enough, they allocate responsibility and budgets down. And at the director, manager, VP level, there are millions of humans running around with kind of million dollar budgets. And so there's a lot of experimentation that can happen inside of that bucket. They're willing to sign up for three, four, five, six, seven, eight, nine things. The minute you sort of transition from a million to like multi-million

4. 28:46

   dollar deals, and this data sort of confirms it, it's a much more thoughtful pitch. It's much more cross-functional inside of a company. And you have to show some form of ROI or total cost of ownership advantage, right? So what's interesting about this, Jason, is 1,900 companies have been able to make the case. That's what I would say. I think there's a ton of experimentation. And I think about 1,900 companies can clearly see an ROI where they can now start to rip in big checks. Now of that 1900, a big portion of those are going to be AI natives, right? Folks that are venture funded. So you have to strip those folks away. And then what's left over is probably a couple of hundred global 2000 type companies. So I think the ROI case is still a little speculative, but the potential is there. And as long as the potential is there, I think

5. 29:37

   the market's going to kind of price it up. So now that's revenue composition. So then the next thing I think about is capitalization. And I said this before, I said, Ant needs to have 200 billion. And I really hope that they actually get close to 250. First of all, let me just say, the CFO of Ant, Krishna Rao, has done an unbelievable job. The fact that he entering June already had $125 billion is unbelievable. And there's a chart I didn't include, but their total net burn to get there has been like $9 billion or $10 billion. It's just infinitesimally low relative to the market cap. So I thought that they had a lot less cash than this. So when I said they need to raise between 200 to 250 and they need to price closer to a trillion, I was assuming they had 30, 40, 50 billion on the balance sheet. I was wrong. So these guys

6. 30:32

   need to raise between, I would say, $80 to $120 billion to get to that quarter trillion. And I think in order to do that, the price is probably now going to come in between $1.3 on the low end to $1.7 on the high end. So call $1.5 the midpoint. So if I had to price the IPO just eyeballing this, I kind of think it'll come in around $1.5 if I had to just kind of guess. And the other thing that I noticed is how much cash Alphabet has and also how much cash meta does not have i was shocked to see that had negative 1.2 billion of cash this must be a mistake but if you look at the 10 q's as of the end of september this is what it shows which net cash net cash maybe it doesn't include short-term investments or something i'm going to take a look at meta's numbers it doesn't make sense yeah i'll tell you in one second your larger point is is

7. 31:22

   right that anthropic like you said over 100 billion of cash they're sitting on they've burnt very little of the money that they've raised again their company's been a model of capital efficiency. They're about to raise $100 billion in this IPO. I think they've got about a debt facility with another $80 billion. You add it all up, and this is a company with over $300 billion of dry powder, or it will soon have that. Then you've got all these anthropic bears who are saying they've made all these CapEx commitments in the future that they're never going to be able to live up to. Actually, this secures those commitments because they've got the capital now to basically back up all of those compute orders, all the forecasted CapEx spending till, I don't know, 2030?

8. 32:06

   You're exactly right. And because they only have to raise 80, right, or 90 or 100, that's a lot different than trying to raise 150 or 175 or 200, which is where I thought they needed to be. And so the demands they're going to put on the capital markets into the IPO are going to be less, which means that they'll have more pricing power, they'll be able to manage of the float better. All of these dynamics, I think, give you a constructive read going into the IPO. Okay, now let's move on. Because I think here's my biggest takeaway. Meta's net cash is