Gabriele SveltoI have never seen a graph explain more clearly what's going and why it's completely unsustainable (and this is just cash-flow, it doesn't take into account the rapidly climbing debt!).
Vidar Hokstad / Galaxy Bound@gabrielesvelto This looks like a pretty expected graph for startups to me. Holding cash is expensive, and a startup typically believes - rightly or wrongly - that they can buy revenue with it, and by extension a higher valuation. You'd expect cash to drop dramatically when they think raising more is expensive at their current valuation vs future.
Now, of course you'd *also* expect it if they're struggling to raise and struggling to reach profit.
But you can't tell from free cash flow alone.
@gabrielesvelto Put another way, when I worked at a VC, our modelling indicated that it'd be near optimal for a startup to almost run out of cash every 12-18 months, as long as you had reasons to be confident your valuation was going in the right direction - short cycles of nearly running out of cash correlated with higher returns.
Of course, it also correlates with risk, so it's not that none of these companies will fail - odds are many will.
@vidar oh yeah, it makes sense for startups. But these are Microsoft, Google, Amazon and Oracle.
@gabrielesvelto But they are effectively acting like startups in the AI space, and they are if anything taking far less risk than genuine startups would, since they have massive revenue from other sources, and plenty of collateral and liquid shares, so they're not really at risk of running out of cash.
@vidar Amazon long-term debt tripled in 24 months, Google's went up 7 times IIRC, Oracle has an absolutely bonkers >3.5x debt-to-equity ratio. Microsoft doesn't look as bad on paper, but Microsoft has a stake in OpenAI so there's that. And then there's the SPVs. There's been several SPV that have been stood up to hold debt so I don't think anybody knows exactly how much debt has been accumulated. The combination of zero cash flow and a lot of debt is rather explosive.
@gabrielesvelto Low cash on hand != zero cash flow. None of these have zero cash flow, and you *want* debt to increase if you have good reason to think you can buy more cashflow with the money than it costs to service the debt - that motivated my startup comparison.
Debt to equity is meaningless unless you expect the company to fail.
Oracle has a *market cap* of $446bn, or ~3x their debt, and costs of maintaining their debt equivalent to ~20%-25% of operating income. They are not at riskl.
@vidar I don't expect Oracle to fail but my opinion isn't worth much and CDS tell a different story
Weltzeitgeist@gabrielesvelto @vidar I don't think that Oracle can survive, if OpenAI fails to pay their bills. But we'll see..