OpenAI completed a major corporate restructuring of its for-profit division last week that highlights the company's vision ahead of 2030. This comes as the company recorded a staggering loss of $11.5 billion in most recent quarter, according to an analysis of financial disclosures from major partner Microsoft.
Corporate Restructuring Paves Way for IPO
The Register conducted the review of Microsoft’s latest earnings report, which was released on Oct. 29. The massive quarterly loss highlights the extraordinary spending levels currently driving the artificial intelligence industry.
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The company transformed its for-profit arm into a public benefit corporation, moving away from nominal control by its nonprofit entity. This restructuring enables OpenAI to operate more similarly to traditional for-profit companies in terms of fundraising and revenue generation.
The new corporate structure also clears the path for OpenAI to pursue a public stock market listing. The company is already preparing for an initial public offering that could value the enterprise at $1 trillion, Reuters reported.
That trillion-dollar valuation would represent double OpenAI’s current worth. If achieved, the IPO would rank among the largest initial public offerings in history. However, the company’s financial performance presents a contrasting picture to its ambitious valuation goals.
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Microsoft Reveals Scale of Investment Losses
Microsoft’s filing reported that its Q3 net income decreased by $3.1 billion due to losses from its OpenAI investment, The Register reported. Microsoft disclosed that it owns 27% of OpenAI following the recent restructuring, which translates to the estimated $11.5 billion quarterly loss.
Ambitious Revenue Projections Despite Heavy Losses
OpenAI’s significant cash consumption has been widely known within the technology sector as rapidly expanding tech startups pursuing market dominance typically operate at losses during growth phases.
When measured against projected revenue, however, the $11.5 billion in losses represents a substantial portion of the company’s financial activity. OpenAI expects to generate $20 billion in revenue by the end of this year, Reuters quoted people familiar with the planned IPO.
ChatGPT currently serves 800 million active weekly users. However, the vast majority of these users access the service without paying subscription fees. Only 5%, or 40 million, of the company's active users pay for premium access, Menlo Ventures reported. This excludes corporate and business users who access ChatGPT through enterprise agreements.
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Microsoft Partnership Extended with Reduced Exclusivity
OpenAI recently completed a major corporate restructuring that extends its partnership with Microsoft through 2032 while simultaneously loosening the tech giant’s exclusive hold on the artificial intelligence company’s operations.
The restructuring allows OpenAI to pursue computing resources from Microsoft’s direct competitors, including Google Cloud and Oracle.
William Blair analyst Jason Ader said that Microsoft’s Azure cloud computing platform must now compete for OpenAI’s business. Under the new terms, Microsoft retains exclusive access to OpenAI’s models and products through 2032. However, the relaxed exclusivity provisions grant OpenAI greater flexibility in sourcing the computational power necessary for developing and operating its AI systems.
SoftBank Maintains Full $30 Billion Commitment
The restructuring came with significant financial implications tied to SoftBank’s investment in the company. SoftBank committed $30 billion to OpenAI earlier this year, but had negotiated terms that would have allowed it to reduce that contribution to $20 billion if OpenAI failed to complete its restructuring by year’s end.
SoftBank has agreed to honor its full $30 billion investment following the completion of the restructuring, The New York Times reported, citing an unnamed person familiar with the deal.
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