How much Anthropic and Cursor spend on Amazon Web Services

Ed's mentioned ARR in previous articles and it's not a "generally accepted accounting principle". They cherry pick the highest monthly revenue number and multiply that by 12, but that's not their actual annual revenue.

"Cherry pick the highest" is misleading. If your revenue is growing 10% a month for a year straight and is not seasonal, picking any other than the most recent month to annualize would make no sense.

Eh, when you have a company that’s growing, picking the highest and annualizing it is sensible. If we had a mature company with highly seasonal revenue it would be dishonest.

If a company's revenue in January is $100 and it grows by 10% every month, the December revenue is $285. The year's revenue would be about $2,138, but ARR in December would be $3,423. That's 1.6x the actual revenue.

ARR could be a useful tool to help predict future revenue, but why not simply report on actual revenue and suggest it might increase in the next year? I have found the most articles to be unclear to the reader about what ARR actually represents.

I mean I think there are instances where OpenAI's revenue is seasonal. Lots of students using it during the school year and cancelling it during summer.

Well people like Sam Altman have not been entirely honest and there's a reason they're not sharing their actual revenue numbers. If they could show they were growing 10% every month they would.

I think you missed the forest for the trees. I am sure the student population has some dropoff during summer months but the point is that for businesses that a growing month over month which most of these have since creation, you take the highest number (latest) and annualize it.

I am also willing to bet that the student dropoff is not pronounced. I am more thinking of a business that sells beach umbrellas, they make a lot of sales in the summer months and then next to nothing in the winter months. That would be dishonest.

Why is the calendar year the relevant unit? If you insist on years, then if you consider the year from June to June, $2,138 would be misleading small.

The point of ARR is to give an up to date measure on a rapidly changing number. If you only report projected calendar year revenue, then on January 1 you switch from reporting 2025 annual revenue to 2026 projected revenue, a huge and confusing jump. Why not just report ARR every month? It's basically just a way of reporting monthly revenue — take the number you get and divide it by 12.

I am really skeptical that people are being bamboozled by this in some significant way. Zitron does far more confusing things with numbers in the name of critique.

Because that's a part of the generally accepted accounting principles: https://www.rightrev.com/gaap-revenue-vs-arr/

Nobody considers a year from June to June because that would be misleading.

Then why aren't AI companies reporting their actual monthly revenues?

That is an article explaining why ARR is useful and important despite not being the same thing as GAAP revenue.

You're correct, ARRs can be both misleading and for any 12-month period (I just chose a year to simplify), but the problem is AI companies tend to only release their latest ARR, and only selectively, which I believe is misleading in the opposite direction.

They are sharing their actual revenue numbers. That's what ARR is. Take the number and divide it by 12 and that's monthly revenue.

The graph that was widely shared to make this claim was from OpenRouter and did not represent ChatGPT usage in any way.

They are. That is what ARR is.

It's literally not ARR is the highest monthly revenue times 12. Dividing it by 12 doesn't get you the actual, on the books monthly revenue numbers.

How can you talk about ARR if you only look at 1 year?

It's useful for financial planning. Less useful for overall financial reporting given how volatile it is.

I should've been more clear. How can you talk about ARR if you only have 1 year?

How do you know it's recurring? What data do you have (historic) that makes you believe the revenue will happen again?

Is this based on signed contracts etc so you have some guarantees?

The "annual" just means that the unit of time is a year. It doesn't mean that it is recurring annually. You can call it Annualized Monthly Recurring Revenue if it makes you feel better.