Appen's growth story under a cloud as WiseTech upgrades

Tech darling Appen has moved to reassure investors that the slump in its full-year 2020 numbers is a temporary blip, citing its strong order book as a sign that it still has the goodwill of its major customers.

Appen , valued at $2.2 billion, makes money by crowdsourcing labour for artificial intelligence/machine learning services for tech giants such as Google and Facebook. It’s one of the five heavyweight technology stocks in the market but has run into turbulence as the pandemic forced its customers to press pause on projects.

Appen chief executive Mark Brayan said its strong order book shows the slump in its AI business triggered by COVID is a temporary issue.Credit: Steven Siewert

The pressure has led to Appen offering a weaker than expected outlook on Wednesday as its 2020 full year result missed earnings targets. The company reported an 11 per cent rise in revenue to $600 million, a 23 per cent rise in net profit to $50.5 million and a 5.5c per share dividend that will be paid March 19. But sales were below expectations across the business, according to RBC Capital.

Appen shares closed 12 per cent lower at $17.81 compared to a high of $25.50 last week.

Appen has faced market scepticism over concerns that its heavyweight customers - Google, Facebook, Amazon and Microsoft - that generate 80 per cent of its revenue are becoming less reliant on its services.

The company downgraded its guidance in December and while it told investors on Wednesday that most of the deferred projects should restart in 2021 chief executive Mark Brayan conceded that business uncertainty for its major tech customers has not ended.

“That’s the nature of the uncertainty that we’re flagging, the customers’ decisions around how they invest in their product portfolio,” he said.

“I think what we’re calling out this year is a period of uncertainty in the first half that will most likely cause a skew to the second half (performance).”

RBC Capital’s Garry Sherriff said the result will continue to drag down Appen given the weak 2020 result and the 2021 guidance which is “well below” consensus estimates and banking on a strong second half performance.

Wilsons Equity research also noted that underlying EBITDA guidance “is notably below current expectations” but said the revenue guidance is encouraging with $240 million in revenue and orders-in-hand so far this year.

Meanwhile, one of Australia’s other high-flying tech stocks, WiseTech Global, continued to burnish its credentials on Wednesday with a profit upgrade at its interim results.

WiseTech upgraded its earnings before interest, tax, depreciation and amortisation (EBITDA) expectations to be in the range of 30 to 50 per cent, representing $165 million to $190 million, which is $10 million above previous guidance. Revenue for the year is still expected to be in the range of 9 to 19 per cent, or $470 million to $510 million.

For the half year, WiseTech reported a 16 per cent rise in revenue to $238.7 million and a 26 per cent decrease in net profit to $44.4 million, reflecting changes made to contingent payments on acquisitions.

WiseTech, which provides software services for the trillion-dollar global logistics industry, also announced a 2.7c per share dividend payable April 9. Its shares closed 1 per cent stronger at $29.85.

Business Briefing

Start the day with major stories, exclusive coverage and expert opinion from our leading business journalists delivered to your inbox. Sign up for the Herald's here and The Age's here.