Appen shares plunge on annual earnings collapse

Investors punish AI specialist Appen, with its new CEO describing its 2022 financial performance as ‘far from satisfactory’.

Appen’s new CEO Armughan Ahmad has a big job turning around the financial performance of the tech group. Picture: Supplied

Appen shares plunged after the AI tech specialist swung to an annual net loss and dumped its 2026 targets.

Instead, the group is now targeting $10m in cost savings by the end of 2024.

In its first set of results since Armughan Ahmad took the top job, Appen on Monday reported an underlying loss after tax of $US22.8m ($33.84m) for the 12 months to December 31 from an underlying profit of $US40.6m a year earlier.

Revenue fell 13 per cent to $US388.5m with underlying earnings before interest taxes depreciation and amortisation plunging 86 per cent to $US11m.

The pressures are continuing with Appen flagging a “poor start” to 2023, which is likely to see first-half EBITDA likely to be “materially lower” than the prior corresponding period. Current 2026 targets have been withdrawn, pending a review to be announced in May.

No dividends will be paid.

Mr Ahmad, who joined two months ago and is a former KPMG and Dell executive, said the 2022 performance “is far from satisfactory.”

“During my first two of months at Appen I’ve had the opportunity to meet our people and experience their deep sense of pride for their work. I believe that Al is the enabler, and our people are the transformers,” he said.

“I’m excited about the potential for Appen and our ability to create a positive impact, however our FY22 financial performance is far from satisfactory. We have a lot of work ahead of us. My top priority is to establish greater operational rigour to accelerate innovation, drive sales and deliver profitable growth.”

Investors punished the company’s share price, sending it down more than 14 per cent to $2.36 on Monday. Its shares are down around 65 per cent over the past 12 months.

Appen’s business is made up of more than 1 million people who earn money by completing tasks like performing web searches and evaluating the quality of the responses, to more complex jobs like taking photos of all the electric vehicle charging stations across a city to help map their locations. It’s that data that has been valuable for the tech giants and powered Appen’s climb up the ASX 200, before it tumbled out last June. Big tech companies account for more than three-quarters of Appen’s revenue.

In 2018, Appen was the ASX’s strongest performer, and its shares hit records highs in 2020, but have plummeted in the past 12 months amid a broader tech downturn and privacy changes to Apple’s iPhones.

It’s also still bruised from a failed takeover in which its prospective suitor, Canadian telecoms outfit Telus, walked away without explanation from an offer that valued Appen at $1.2bn. Appen has a current valuation of $298m.

“New CEO Armughan Ahmad is beginning to make his presence felt at Appen, with the withdrawal of long-term (FY26e) guidance, the impairments taken and the acknowledgment of the need for more visibility into revenue just some examples as examples of his arrival,” Wilsons analysts said in a research note.

“Mr Ahmad has noted that the focus for FY23e includes improving the efficiency of Appen Connect (the crowd management and delivery platform) and ‘revamping’ the user experience for its crowd workers (eg moving to a mobile-first interface, higher automation of support, simplified project qualification, etc.).

“However, these new areas of focus, as well as capturing Generative AI opportunities, will need to be balanced against its current business that is seeing more volatile spending patterns from its largest customers, has (and always has had) limited revenue visibility and arguably nonlinear increases in competition from new, specialist players.

“We look forward to hearing the outcome of Mr Ahmad’s strategic review in May, but that will be against a backdrop of a challenging 1H23e.”