The company made its stock market debut in early 2015 at 50c a share with a market capitalisation of $47 million,and soared to over $40 in late 2020,valuing the company at nearly $5 billion.
How it’s going: Mark Brayan stepped down as Appen’s chief executive just before Christmas,having run the company since 2015. Shares subsequently dropped to fresh multi-year lows of $2.28,valuing the group at less than $300 million.
It looks good if you bought and held shares in the IPO,but it has been a bruising ride for investors who bought in at its 2020 peak.
Industry: Artificial intelligence services and speech recognition.
Main products:Providing a crowdsourced army of workers to help train the AI systems of big tech companies like Microsoft,Facebook and Google,as well as speech recognition services.
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Key figures: Dr Julie Vonwiller and her husband Chris – whose roles have included chief executive and chairman – remain significant investors in the group which is currently chaired by former Foxtel chief Richard Freudenstein.
The bull case: Appen remains a dominant player in the data annotation space and is well-positioned should the market for these services,among the tech giants,recover.
Appen is also mitigating its reliance on customers like Facebook and Google by building up a promising business in China,and elsewhere,which gives it growth from a larger customer base of smaller companies.
Analysts like Wilsons’ Ross Barrows can still see catalysts for the stock like its high quality,albeit concentrated customer base – as well as its strong position in the data annotation industry.
“Appen is one of two leading global players,with a material gap to number three,” he says.
Like other local tech stocks,Appen faces predators looking to pick it up on the cheap,and it has not been this cheap in years.
Canadian tech group Teluswalked away from a $1.2 billion takeover bid in May last year just hours after it was revealed. With a current valuation around the $300 million mark,someone surely must be interested in a company with no debt and a solid cash conversion rate.
The bear case: You only need to look at the latest attrition from the tech giants to see that everyone is bunkering down for a tough year which does not augur well for Appen,with its business strongly tied to the advertising fortunes of its big customers.
“Challenging external operating and macro conditions have resulted in weaker digital advertising revenue and a slowdown in spending by some of their major customers. This impacted ad-related programs and had a flow-on impact to non-ad related programs and some core programs,” RBC Capital Market’s Garry Sherriff pointed out after Appen’s most recent downgrade.
On top of this,Appen is being forced to fund its growth in promising – but small – new markets like China as its revenue from the tech giants,which provide 80 per cent of its business,falters.
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Sherriff points out that the same financial dynamics which boosted earnings strongly on soaring revenue during the good times have gone into reverse.
“In our August note we flagged negative jaws materially reducing margins as revenue falls,costs increase,and we continue to believe there is a potential impairment risk at the December 2022 result,” he says.
Appen’s full-year results are due next month.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.