Shares in technology company, Appen Ltd (ASX: APX), received a boost today after RBC Capital Markets put an outperform rating on the stock, upgrading its target of the Appen share price to $40. This represents a 24% increase from RBC Capital’s last price target.
The Appen share price closed today’s session 4.23% higher at $33.76 amid an across-the-board rise in the ASX.
Why the upgrade?
According to RBC Capital, the upgrade is largely due to Appen’s United States clients reporting a rebound in their search and advertising revenues in recent quarters.
“Better-than-expected results from US technology companies in segments relevant to Appen imply an improving demand environment for Appen’s services in the September quarter”, an RBC Capital analyst said.
RBC Capital also lifted its estimates for Appen’s earnings before interest, tax, depreciation and amortisation (EBITDA) by 2% for financial year 2021 and by 7% for financial year 2022.
Three US technology companies, Microsoft Corporation (NASDAQ: MSFT), Facebook Inc (NASDAQ: FB), and Alphabet Inc‘s (NASDAQ: GOOGL) (NASDAQ: GOOG) Google make up 80% of Appen’s revenue.
How does Appen make money?
Appen makes money by teaching computers basic things like speech and image recognition. It provides some of the fundamental grunt work for tech giants like Microsoft, Google, and Facebook by outsourcing this work to a global workforce that collects and tests low-level data, before transforming it into useful machine learning data for these tech giants.
How has the Appen share price performed this year?
The Appen share price has risen by more than 52% this year, amid a very strong performance in the technology sector. By comparison, the S&P/ASX All Technology Index (ASX: XTX) has returned around 27% year to date.
At the current price of $33.76, at which Appen closed today, the company has a market capitalisation of $3.9 billion.
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