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I’m also curious about your last question. Cost of goods sold would not fall into R&D or sales as far as I know. So curious, in fact, that I asked Gemini to re

I’m also curious about your last question. Cost of goods sold would not fall into R&D or sales as far as I know. So curious, in fact, that I asked Gemini to reconstruct their income statement from the info in this article :) There seems to be an assumption that the 20% payment to MS is the cost of compute for inference. I would bet that’s at a significant discount - but who knows how much… Line Item | Amount (USD) | Calculation / Note Revenue $4.3 Billion Given. Cost of Revenue (COGS) ($0.86 Billion) Assumed to be the 20% of revenue paid to Microsoft ($4.3B * 0.20) for compute/cloud services to run inference. Gross Profit $3.44 Billion Revenue - Cost of Revenue. This 80% gross margin is strong, typical of a software-like business. Operating Expenses Research & Development ($6.7 Billion) Given. This is the largest expense, focused on training new models. Sales & Ads ($2.0 Billion) Given. Reflects an aggressive push for customer acquisition. Stock-Based Compensation ($2.5 Billion) Given. A non-cash expense for employee equity. General & Administrative ($0.04 Billion) Implied figure to balance the reported operating loss. Total Operating Expenses ($11.24 Billion) Sum of all operating expenses. Operating Loss ($7.8 Billion) Confirmed. Gross Profit - Total Operating Expenses. Other (Non-Operating) Income / Expenses ($5.7 Billion) Calculated as Net Loss - Operating Loss. This is primarily the non-cash loss from the "remeasurement of convertible interest rights." Net Loss ($13.5 Billion) Given. The final "bottom line" loss.

vessenes 1y ago
Thanks for doing the prompting work here. One thing I read - with $6.7bn R&D on $3.4bn in Gross Profit, you need a model to be viable for only one year to pay back. Another thing, with only $40mm / 5 months in G&A, basically the entire company is research, likely with senior execs nearly completely equity comped. That’s an amazingly lean admin for this much spend. On sales & ads - I too find this number surprisingly high. I guess they’re either very efficient (no need to pitch me, I already pay), or they’re so inefficient they don’t hit up channels I’m adjacent to. The team over there is excellent, so my priors would be on the first. As doom-saying journalists piece this over, it’s good to think of a few numbers: Growth is high. So, June was up over $1bn in revenues by all accounts. Possibly higher. If you believe that customers are sticky (i.e. you can stop sales and not lose customers), which I generally do, then if they keep R&D at this pace, a forward looking annual cashflow looks like: $12bn in revs, $9.6bn in gross operating margin, $13.5bn in R&D, so net cash impact of -$4bn. If you think they can grow to 1.5bn customers and won’t open up new paying lines of business then you’d have $20-25bn in revs -> maybe $4bn in sales -> +2-3bn in free cashflow, with the ability to take a breather and make that +15-18bn in free cashflow as needed. A lot of that R&D spend is on training which is probably more liquid than employees, as well. Upshot - they’re going to keep spending more cash as they get it. I would expect all these numbers to double in a year. The race is still on, and with a PE investment hat on, these guys still look really good to me - the first iconic consumer tech brand in many years, an amazing team, crazy fast growth, an ability to throw off billions in cash when they want to, and a shot at AGI/ASI. What’s not to like?

vessenes 1y ago

Thanks for doing the prompting work here. One thing I read - with $6.7bn R&D on $3.4bn in Gross Profit, you need a model to be viable for only one year to pay back. Another thing, with only $40mm / 5 months in G&A, basically the entire company is research, likely with senior execs nearly completely equity comped. That’s an amazingly lean admin for this much spend. On sales & ads - I too find this number surprisingly high. I guess they’re either very efficient (no need to pitch me, I already pay), or they’re so inefficient they don’t hit up channels I’m adjacent to. The team over there is excellent, so my priors would be on the first. As doom-saying journalists piece this over, it’s good to think of a few numbers: Growth is high. So, June was up over $1bn in revenues by all accounts. Possibly higher. If you believe that customers are sticky (i.e. you can stop sales and not lose customers), which I generally do, then if they keep R&D at this pace, a forward looking annual cashflow looks like: $12bn in revs, $9.6bn in gross operating margin, $13.5bn in R&D, so net cash impact of -$4bn. If you think they can grow to 1.5bn customers and won’t open up new paying lines of business then you’d have $20-25bn in revs -> maybe $4bn in sales -> +2-3bn in free cashflow, with the ability to take a breather and make that +15-18bn in free cashflow as needed. A lot of that R&D spend is on training which is probably more liquid than employees, as well. Upshot - they’re going to keep spending more cash as they get it. I would expect all these numbers to double in a year. The race is still on, and with a PE investment hat on, these guys still look really good to me - the first iconic consumer tech brand in many years, an amazing team, crazy fast growth, an ability to throw off billions in cash when they want to, and a shot at AGI/ASI. What’s not to like?