OpenAI Rains On The Tech Parade

Over the last couple of months, the technology sector has grossly outperformed the market, as many other sectors have fallen victim to higher yields and oil prices. While seemingly immune to the bond market, Tech stocks were hit late last week after the Financial Times reported that OpenAI told investors its annualized revenue was approaching $50 billion as of the end of September. Nine days earlier, Reuters reported the same figure at nearly $70 billion, citing people familiar with the financials. Because OpenAI is private, both estimates came from people employed by or briefed by the company.

The abrupt change in the forecast is probably not deception or a lower revision. It is the annualized revenue metric itself. Annualized recurring revenue (ARR) typically means taking one month’s revenue and multiplying by twelve. Reuters noted the issue in its own story, calling ARR “sometimes misleading” and discussing the multiplication problem. Different months may define recurring differently, and different treatment of enterprise contracts can produce different answers. OpenAI’s ARR numbers are not audited like a public company.

In leaked SEC filings for an IPO, OpenAI reported $5.7 billion of revenue in the first quarter and $6.7 billion in the second, per the Wall Street Journal. That is $12.4 billion in the first half. Per the FT, an  OpenAI investor deck in September projected $36 billion for the full year.