By Colin Kruger and Lachlan Abbott
Artificial intelligence company Appen said it would not change its strategy despite another earnings downgrade due to advertising weakness from major customers, such as Facebook, sending the stock plunging to its lowest level since 2017.
Appen’s share price fell 27.3 per cent to $4.15 on Tuesday after the company told the market its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) across the first-half of this year were 69 per cent lower at US$8.5 million ($12.1 million). This was well below analyst expectations.
The company said lower revenue, product investments and a foreign exchange loss caused the earnings downgrade. Revenue was 7 per cent down to $US182.9 million ($260 million) as larger customer spending slowed.
Appen chief Mark Brayan remains committed to Appen’s longer-term revenue targets.Credit: Steven Siewert
“With no improvement in July trading, there remains uncertainty about a continued slowdown of spending from our global customers and their exposure to weaker digital advertising demand,” Appen chief executive Mark Brayan told analysts and investors on a conference call.
“As a result, the conversion of forward orders to sales is less certain this year compared to prior years.”
Appen makes most of its money from crowdsourcing a global workforce of a million people who do the grunt work for tech giants such as Facebook, Google and Amazon. The workers teach computers to recognise basic images and speech, laying the groundwork for the development of artificial intelligence solutions.
The company’s share price crashed from a $40.08 high in August 2020 after a series of downgrades raised concerns that its five major customers, which account for 80 per cent of its revenue, may be growing less dependent on its services.
Brayan remained committed to Appen’s longer-term revenue targets while failing to provide guidance for the year ending December 31.
“Longer term, we’re banking on what we believe is a very strong trend around AI and a very strong need for AI training data,” Brayan said.
Analysts, including Citi’s Siraj Ahmed, flagged potential negative surprises last month, citing digital advertising weakness and Facebook, Appen’s largest customer, transitioning to a new AI engine.
Wilsons Equity Research analyst Ross Barrows said the downgrade was worse than its below-market forecasts.
“Today’s downgrade again reiterates Appen’s ‘Achilles’ heel’ – high levels of project-based work from a small number of concentrated clients, noting that it was a tailwind in its early years,” he said.
“Today’s result and the second-half outlook suggests visibility remains challenging, and with no full-year guidance provided today, direction for the stock will be difficult between now and the full-year result in August.”
RBC Capital’s Garry Sherriff was also downbeat about the clouds around its immediate outlook.
“The de-rating of Appen is likely to continue in our view given multiple material downgrades and questions on revenue visibility and strategy.”
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