By Colin Kruger
Artificial intelligence crowdsourcing provider Appen spent this week trying to answer the question that has wiped as much as $4 billion from its market valuation since August: Can the company thrive despite its reliance on US tech giants like Amazon and Facebook which account for the lion’s share of its revenue?
In a market update on Wednesday, Appen detailed its plans to restructure and become more customer and product-focused by actually using artificial intelligence itself. Where as it previously just provided human labour, Appen will provide a full service AI platform to help customers like Amazon identify things like different hat choices for its customers. “To put it simply, we are accelerating our transformation into an AI-powered provider of AI data and solutions,” said Appen chief executive Mark Brayan.
Appen’s overreliance on the US tech giants has triggered a $4 billion share rout since August. Credit: AP
On Thursday, the company provided details of its new products that will build new business outside of the tech giants like Facebook, Google, Microsoft and Amazon which have provided up to 80 per cent of its revenue.
This reliance triggered a share rout starting last December when Appen issued an earnings downgrade. It blamed the tech giants shift in focus away from big projects that require Appen’s expertise, but claimed this was a temporary blip.
This blip came despite Facebook, Microsoft, Google, and Amazon all beating consensus revenue estimates in their most recent quarterly reports.
Most of Appen’s work relates to the tech giants’ advertising businesses, with its workers teaching computers to recognise basic images and speech, laying down the basic groundwork for the development of ‘Artificial Intelligence’ solutions.
Appen’s products came into focus last week when it was forced to apologise after being hit by claims of racism in its recruitment processes after it asked job candidates about their skin colour. A spokeswoman said there was no intended racism in Appen’s hiring processes, practices or policies.
At the technology briefing on Thursday, Appen executives faced the big question: do the tech giants still need Appen?
“We see a departure from people building their own platforms to wanting to work with a specialist provider,” was the reassuring answer from Mr Brayan.
According to Appen’s Ryan Kolln, managing the million-plus workforce Appen has attracted to do these menial tasks is a big task in itself. “During our sales processes, we have many customers who have been down this journey where they started with a narrow-use case and build something internally but quickly realise that it is very difficult to manage quality in particular, and it’s difficult to support a breadth of AI use cases,” said Mr Kolln.
“So, customers come to us when their AI use is getting serious”.
Macquarie Equities said the main benefit of these new products Appen unveiled this week is the reduced reliance it will have on the tech giants.
“Though these products may add limited value to its global customers over the longer term, they will help Appen gain new business at higher margins and achieve its goal of diversifying into new markets,” said Macquarie.
Macquarie said Appen had already increased this new business from 17 per cent of revenue in the first half of 2019 to 23 per cent in the second half of the 2020 financial year.
But Macquarie stuck to a $14.70 valuation of the stock on the grounds its ability to hit its 2021 guidance will be challenging.
Wilsons research was more positive, its Overweight recommendation and $22.69 price target citing the industry trends that work in Appen’s favour.
“Analysis is shifting from model-centric to data-centric AI, increasing demand for Appen’s services.”