Comment by vessenes

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?