Appen issues third profit downgrade since July; shares nosedive to a five year low

Thu 06 Oct 22, 11:58am (AEST)
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Source: iStock

Key Points

  • Appen shares plummet below the $3 level for the first time since 2017
  • The AI data firm reaffirmed its full-year revenue outlook but expects earnings and margins to be "materially lower"
  • Appen is now doing more revenue than its entire market cap

The downturn for AI data firm Appen (ASX: APX) has more legs to run after declaring its third earnings downgrade since late July. The company's shares tumbled -15.3% to a fresh five year low of $2.83 as the market opened.

Appen said there has been no improvement in trading conditions in August and September, contrary to its half-year results commentary where the company said "we still expect to see higher volumes in the latter part of 2H."

"As noted at the half year, challenging external operating and macro conditions have resulted in weaker digital advertising revenue and a slowdown in spending by some of our major customers," the company said in a statement.

"The Global Division continues to win new projects and the project count is at an all-time high, however the size and stage of these projects is insufficient to offset the reduction in revenue from some of our higher margin core programs."

Appen retained its full-year revenue outlook of US$375m to US$395m but expects earnings and margins to be "materially lower than FY21."

The company expects full-year earnings to be in the range of US$13m to $18m, reflecting a reduction in large, higher margin projects and an increase in smaller, lower margin projects.

The earnings downgrade represents a -77.2% to -83.5% decline compared to a year ago.

A shell of its former self

Artificial intelligence, deep learning and the data needed to support it kicked off a miracle run for Appen shares between 2015 to 2020. Amid this gold rush, Appen was the provider of picks and shovels.

As the AI gold rush era came to an end, so did Appen's growth prospects and rich valuation.

It's been a sharp turnaround for the tech industry amid rising interest rates and bearish investor sentiment. Appen's top clients like Facebook-parent Meta and Google are both trying to reel in costs, with recent moves to freeze new hires.

Appen shares are down -74% year-to-date. But things aren't looking that much better for its clients, with Meta shares down -57% this year.

Revenue greater than market cap

After another double digit percentage dip on Thursday, Appen's market cap is now sitting around $390m compared to its forecasted $575m to $605m revenue guidance (at today's exchange rates).

Remember back in the day when tech companies could easily trade at 20 to 50 times revenue multiples?

APX chart
Appen share price chart


Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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