OpenAI Is Missing Key Revenue, User Targets Affecting Plans For IPO

Companies miss targets sometimes. It is never a good outcome, but it need not be catastrophic. For normal companies in normal times, that is. 

OpenAI is not a normal company and these are not normal times. AI has reset the business world's definition of success. Unheard of amounts of money are pouring into AI company coffers.  Investors' expectations are extraordinary to the point of being delusional. So when one of the two leading AI firms reveals that it has missed key revenue and user numbers at the same time as a growing number of analysts are asking uncomfortable questions about whether growth plans are realistic, the corporate world takes notice. And when that company's Chief Financial Officer is then reported in the Wall Street Journal to be concerned about the impact of those missed targets on its ability to launch one of the most highly anticipated IPOs of this century, pandemonium ensues. And justifiably so. The Silicon Valley hype machine has savagely attacked anyone who questions the 'inevitability' of AI's future. So when negativity emerges from inside the tent, do not expect the business world to just say, 'no biggie.' JL

Berber Jin reports in the Wall Street Journal:

OpenAI recently missed its own targets for new users and revenue, stumbles that have raised concern among some company leaders about whether it will be able to support its massive spending on data centers. OpenAI missed multiple monthly revenue targets earlier this year after losing ground to Anthropic in the coding and enterprise markets. Chief Financial Officer Sarah Friar has told other company leaders that she is worried the company might not be able to pay for future computing contracts if revenue doesn’t grow fast enough, according to people familiar with the matter. In recent months, Friar has also expressed reservations about OpenAI’s plans to go public by the end of this year

OpenAI recently missed its own targets for new users and revenue, stumbles that have raised concern among some company leaders about whether it will be able to support its massive spending on data centers.

Chief Financial Officer Sarah Friar has told other company leaders that she is worried the company might not be able to pay for future computing contracts if revenue doesn’t grow fast enough, according to people familiar with the matter. 

Board directors have also more closely examined the company’s data-center deals in recent months and questioned Chief Executive Sam Altman’s efforts to secure even more computing power despite the business slowdown, the people said.

The spending scrutiny is constraining Altman’s once-boundless ambitions ahead of a potential initial public offering that could take place by the end of the year. Friar and other executives are now seeking to control costs and instill more discipline in the business, at times putting them at odds with their CEO, people familiar with the issue said. 

“We are totally aligned on buying as much compute as we can and working hard on it together every day,” Altman and Friar said in a joint statement Monday night. Any suggestion that the pair are divided or pulling back on securing new computing resources is “ridiculous,” they said.

The Nasdaq composite was down more than 1% earlier Tuesday following The Wall Street Journal’s report, including declines in Nvidia NVDA -1.63%decrease; red down pointing triangle, Oracle and other close OpenAI partners. Global tech conglomerate SoftBank Group 9984 -9.86%decrease; red down pointing triangle, which has committed more than $60 billion to OpenAI, fell 9.9% in Tokyo trading.

OpenAI CEO Sam Altman CLARA MOKRI FOR WSJ

The company said in a statement Tuesday that there is “no truth” to the idea of a rift between Friar and Altman on computing resources. “The business is firing on all cylinders and the mood internally is incredibly positive,” the statement said.

For years, Altman has sought to lock up as much data-center capacity as possible, arguing that computing shortages were the biggest constraint to OpenAI’s growth. He went on a dealmaking spree last year that put OpenAI on the hook for some $600 billion in future spending commitments, and tied much of the tech sector’s success to OpenAI’s.

The “buy everything” computing strategy was buoyed by ChatGPT’s seemingly invincible success, and had the support of both Friar and the board. But the chatbot’s growth slowed toward the end of last year, sowing fresh doubt among company leaders about the approach. 

OpenAI missed an internal goal of reaching one billion weekly active users for ChatGPT by the end of last year, according to people familiar with the goals. The company still hasn’t announced that milestone, unnerving some investors. It also missed its yearly revenue target for ChatGPT as well after Google’s Gemini saw massive growth late last year and ate into OpenAI’s market share, the people said. The company has also struggled with defection rates among subscribers, according to people familiar with those figures.

OpenAI missed multiple monthly revenue targets earlier this year after losing ground to Anthropic in the coding and enterprise markets, people familiar with its finances said.

OpenAI recently raised $122 billion in what was the largest funding round in Silicon Valley history, putting it on more solid financial footing. But the company has signed up for so much computing power that it expects to burn through that amount in the next three years, assuming that it meets ambitious revenue targets. Some of the funding is also conditional and depends on specific agreements with partners.  

The company’s coding tool Codex is growing quickly in popularity, and it is shaving costs by cutting other projects such as its video-generation app Sora. OpenAI recently released GPT-5.5, a powerful model that topped a number of industry benchmarks.

A number of AI companies including Anthropic have faced a capacity crunch for computing in recent weeks, leading to price increases for access to AI processors, outages and rationing. The challenges have rankled power users of AI products, especially coders who have grown frustrated when AI systems have been unable to finish tasks in a way they had come to expect from past use.

OpenAI said in a recent memo to investors that it has been able to secure more computing capacity than Anthropic, giving it an advantage in reaching users. The memo, which was viewed by The Wall Street Journal, also addressed Anthropic CEO Dario Amodei’s veiled criticism of OpenAI at a recent business conference, when he said some companies had pulled “the risk dial too far” on data-center spending. 

“In hindsight, that caution looks less like discipline and more like underestimating how fast demand would arrive,” the OpenAI memo said. 

In recent months, Friar has also expressed reservations about OpenAI’s plans to go public by the end of this year, according to people familiar with the matter. 

She has emphasized to executives and board directors the need for OpenAI to improve its internal controls, cautioning that the company isn’t yet ready to meet the rigorous reporting standards required of a public company. Altman has favored a more aggressive timeline for an IPO, some of the people said. Some details of OpenAI’s business challenges were earlier reported by tech-news site The Information.

OpenAI has to work through a slate of other issues ahead of a public listing. The company is currently experiencing a leadership vacuum after its second-in-command, Fidji Simo, unexpectedly took medical leave earlier this month. Separately, court proceedings began this week in a lawsuit by Elon Musk in which he is seeking to oust Altman and unwind OpenAI’s conversion into a for-profit company.