Appen tumbles on profit miss, iOS privacy changes

Part of the famed ‘WAAAX’ group of tech stocks, Appen’s shares have hit their lowest point in years.

Appen chief executive Mark Brayan. Picture: Jane Dempster

Shares in artificial intelligence specialist Appen plummeted by more than 25 per cent to a four-year low on Thursday after its results for the 2021 financial year missed expectations.

Appen on Thursday posted an 8 per cent revenue increase for the 12 months ending December 31, to $US447.3m ($621.4m), driven by a strong second half from the company’s global services and new markets segments.

However, it missed its full-year guidance and did not set guidance for 2022. Investors punished the company, sending its shares down 28.7 per cent to $6.11.

The company posted underlying earnings before interest, taxation, depreciation and amort­isation up 3 per cent to $US77.7m, and up 11.6 per cent on a constant currency basis. However, its net profit after tax fell 20 per cent year-on-year to $US28.5m, falling short of a Factset consensus estimate of $US36.1m.

The company creates human-curated datasets to train artificial intelligence programs. It has been hit by privacy changes made by Apple to iPhones, changes that have also hit tech giants including Facebook, which earlier this year reported a $US10bn hit to its advertising revenues due to the changes. Those changes restrict how much data third parties can glean off end users when they use apps and browse the web. Appen has never disclosed its customer base, but it is thought to include the tech giants such as Amazon and Facebook.

Appen – one of Australia’s so-called “WAAAX” tech stocks, along with Xero and WiseTech – declared a final dividend of 5.5c a share, 50 per cent franked.

Appen CEO Mark Brayan said margins were affected by higher cost of sales, which reflected a change in the mix of customers and projects.

Richard White of WiseTech Global, Anthony Eisen, Afterpay, Chris Vonwiller, Appen, Aram Mirkazemi, Altium and Kirsty Godfrey-Billy from Xero at the ASX New Technology Index Launch in 2020. Picture: John Feder

Mr Brayan said on Thursday he expected costs to be higher in the first half of 2022 due to new “transformation office costs, investment in product and technology, and share-based payment expenses”. He said this would “result in a larger earnings skew” to the 2022 financial year’s second half, when compared to the 2021 financial year.

He said overall his company had maintained its track record of profitable growth in 2021.

“While our enterprise business also had a good year, it has yet to achieve its full potential. We have fresh leadership, rebuilt the team and they are focused on accelerating growth,” he said.

“Our government team continued to work with clients and partners to support their AI initiatives. This work is bearing fruit as we were recently selected in a partnership for the US government’s Joint Artificial Intelligence Centre’s Blanket Purchase Agreement to support technology capabilities acceleration.

“During the year, we experienced negligible Covid-related impacts, and continued to deliver quality outcomes for our customers, with our seamless, flexible remote crowd delivery capability.

“We continue to invest for the future. Our investments in product development reflect the important role our technology plays to drive new business, scale, quality and margin expansion.”

Appen recently completed a strategic review, Mr Brayan said, in a bid to remain at the forefront of technology and market trends.

“As part of this strategy, we’ve set ourselves ambitious future revenue, business mix and profitability targets. We’ve also had an encouraging start to the year with our revenue order book at around $190m.”

The company has set targets for FY2026 of at least doubling FY21, improving customer mix with one-third revenue from non-global customers, and achieving an EBITDA margin target of 20 per cent.

“We are highly focused on these targets and will invest for growth in new products, sales and marketing, partnerships and explore M&A opportunities with a focus on long-term revenue growth,” Mr Brayan said.

“Our long-term revenue focus may impact EBITDA margins in the near term and future dividend payouts.”