Appen shares dive after Google cuts multimillion-dollar contract

Investors have ditched shares in listed Australian AI company Appen after Google abruptly terminated a multimillion-dollar contract over the weekend.

Appen CEO Armughan Ahmad.

Appen shares have taken a dive, dropping 40 per cent after the company unexpectedly lost a multimillion-dollar contract with Google.

Shareholders did not take kindly to an investor note on Monday that revealed that a contract which over the past year had delivered the AI company $US82.8m ($125m) in revenue was abruptly terminated over the weekend.

The massive upset is one of many to strike Appen over the past couple of years. The company once rode the growing wave of AI, making a name for itself for on-selling data to companies building chatbots and AI-powered products with human-like capabilities.

Appen did so by paying people to complete up to 40,000 tasks per month, which included getting them to verify its machine learning models had identified objects, items and data correctly.

At one stage it faced the issue of finding enough people to do the work, former chief executive Mark Brayn told The Australian in 2018. 

“If there is any challenge for us, it’s finding the right amount of ­humans to do the work,” he said at the time.

However, that work began to slow significantly during the pandemic as AI increasingly began to encroach on the ways companies operate and their ability to turn a profit. The technology now appears to be disrupting companies who once provided data to develop it.

Appen has in recent years also struggled following crackdowns on consumer data and privacy, including changes on Apple iPhones that restrict how much data third-parties can collect.

In August last year, the company remained upbeat about the future, with its chief executive Armughan Ahmad confident that Appen “continues to play an important role in the industry” amid a broader rising interest in AI.

“We are seeing growing demand in generative AI and have seen some early green shoots in our new generative AI product offerings. To date, 42 large language model projects have been delivered and we have signed our first million-dollar deal with Nvidia,” he said at the time. Those comments arrived on the back of Appen having reported a statutory loss was $43.3m

Google has not publicly explained why it had terminated Appen’s contract; however it’s understood it arrived as part of a strategic review process.

Appen shares closed at 27.5c on Monday, a drop of 40.2 per cent, as investors began ditching the company shortly after the ASX opened. On Friday, it closed at 46c.

The news came as a shock to the company, which told investors it had “no prior knowledge” of Google’s plans to terminate that contract.

“The news is unexpected and disappointing, particularly considering the progress made against Appen’s transformation and performance in November and December 2023,” a note to investors read.

The company told investors it would now “adjust its strategic priorities”, with an update on how that would take place to come in its financial results due late next month.

“Appen continues to focus on cost management, business turnaround and delivery of high-quality AI data for its customers,” it said. “Appen will immediately adjust its strategic priorities following the notification of the Google contract termination and provide further details in its FY23 full year results on 27 February 2024.”

Appen learned that Google would terminate the contract on Saturday, with the decision arriving as part of a strategic review process. All remaining work as part of the contract would cease from March 19.

The company said that at a group level and based on unaudited management accounts, it recorded $US273m in revenue and an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $US20.4m for the full year in 2023.