3 ms·

As a long time FT subscriber, I'm happy you're using them as a source. The Zitron details were more useful to me though. And none of my points have anything to

As a long time FT subscriber, I'm happy you're using them as a source. The Zitron details were more useful to me though. And none of my points have anything to do with the once off losses. I'm observing that a bunch of costs appear to be scaling with revenue or above revenue, which does not bode well for future profitability. Also, as an aside, stripping out equity grants is really misleading for a private, high growth tech company.

simianwords 4mo ago
The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. Once expectation stabilises these losses won’t happen because the valuation will remain constant. A lot of people were paid really high equity grants simply because they started low. You can’t expect them to be paid the same amount each time. FT themselves point this out and who you believe is up to you.
- disgruntledphd2 4mo ago
  > The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. My original point around equity is that if you pay a substantial fraction of comp in this form, then leaving it out of expenses is pretty bizarre. Is it your contention that the equity grants are the cause of their increasing losses? I believe that this is probably not true at all, it's more likely to be S&M (salespeople scale as N not log(N) like engineering/product) particularly given that the product requires tuning for lots of companies (hence all the FDE hires). More generally, the training costs seem to be increasing which is bad for their future profitability.
  - simianwords 4mo ago
    It’s not my contention, it’s FT’s conclusion. Also it should be obvious that you shouldn’t extrapolate stock based compensation in a scale up. People make a one time bounty but that is not recurring obviously.
    - disgruntledphd2 4mo ago
      > Before OpenAI’s switch late last year to become a public benefit corporation, investors in the company received convertible interest rights rather than conventional equity. Under US accounting rules, those interests were treated as liabilities and periodically revalued as the company’s valuation increased. As OpenAI’s worth rose, the increased value of those investor rights created a roughly $30bn charge, added the person. The charge is not expected to recur following the restructuring, they said. Stripping out the charge and other non-cash expenses, such as stock-based compensation of staff and computing credits from Microsoft, OpenAI’s losses were $8bn, according to the person. I presume that this is what you're talking about, right? That doesn't actually disagree with what I noted above using the (more detailed) figures from Ed's article. I noted that their revenue scaled by about 3x, while many costs (cost of revenue, sales & marketing, r&d) scaled by either equal (r&d) or greater than their revenue scaled. That's the point I was (apparently badly) making, nothing to do with the stock based compensation causing their losses. In any case, the loss was actually driven by treatment of the non-profit shares. > Also it should be obvious that you shouldn’t extrapolate stock based compensation in a scale up. People make a one time bounty but that is not recurring obviously. Correct, in some sense this is a once-off, however, most tech companies continue granting stock over time, so it's definitely worth including in actual margins. (This is a more general point that's not exclusive to Open AI).

simianwords 4mo ago

The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. Once expectation stabilises these losses won’t happen because the valuation will remain constant. A lot of people were paid really high equity grants simply because they started low. You can’t expect them to be paid the same amount each time. FT themselves point this out and who you believe is up to you.

disgruntledphd2 4mo ago
> The losses are scaling with revenue because increase in (expected) revenue increases valuation which increases compensation. My original point around equity is that if you pay a substantial fraction of comp in this form, then leaving it out of expenses is pretty bizarre. Is it your contention that the equity grants are the cause of their increasing losses? I believe that this is probably not true at all, it's more likely to be S&M (salespeople scale as N not log(N) like engineering/product) particularly given that the product requires tuning for lots of companies (hence all the FDE hires). More generally, the training costs seem to be increasing which is bad for their future profitability.
- simianwords 4mo ago
  It’s not my contention, it’s FT’s conclusion. Also it should be obvious that you shouldn’t extrapolate stock based compensation in a scale up. People make a one time bounty but that is not recurring obviously.
  - disgruntledphd2 4mo ago
    > Before OpenAI’s switch late last year to become a public benefit corporation, investors in the company received convertible interest rights rather than conventional equity. Under US accounting rules, those interests were treated as liabilities and periodically revalued as the company’s valuation increased. As OpenAI’s worth rose, the increased value of those investor rights created a roughly $30bn charge, added the person. The charge is not expected to recur following the restructuring, they said. Stripping out the charge and other non-cash expenses, such as stock-based compensation of staff and computing credits from Microsoft, OpenAI’s losses were $8bn, according to the person. I presume that this is what you're talking about, right? That doesn't actually disagree with what I noted above using the (more detailed) figures from Ed's article. I noted that their revenue scaled by about 3x, while many costs (cost of revenue, sales & marketing, r&d) scaled by either equal (r&d) or greater than their revenue scaled. That's the point I was (apparently badly) making, nothing to do with the stock based compensation causing their losses. In any case, the loss was actually driven by treatment of the non-profit shares. > Also it should be obvious that you shouldn’t extrapolate stock based compensation in a scale up. People make a one time bounty but that is not recurring obviously. Correct, in some sense this is a once-off, however, most tech companies continue granting stock over time, so it's definitely worth including in actual margins. (This is a more general point that's not exclusive to Open AI).