After surging to a new all-time high price of $43.66 in August, Appen Ltd (ASX: APX) shares have now lost almost 60% of their value and are trading at just $17.38.
This is also not far off the 52-week low of $15.15 the Appen share price fell to during the worst days of the COVID-19 crash last March.
It’s a massive about-face for a company that was once considered a must-have growth share. Along with WiseTech Global Ltd (ASX: WTC), Afterpay Ltd (ASX: APT), Altium Limited (ASX: ALU) and Xero Limited (ASX: XRO), Appen was a member of the WAAAX group of stocks – media darlings and supposed disruptive industry innovators.
Simply put, Appen specialises in machine learning and artificial intelligence (AI). The company provides large amounts of data to help its clients ‘train’ their AI applications and improve automation techniques. Using Appen’s platform, clients can improve the functionality of their AI applications and drive better outcomes.
For example, Appen can provide visual imagery data to a company developing self-driving vehicles to train a computer to recognise cars, pedestrians, traffic lights and other road hazards. Or, it could provide large amounts of audio and text data to help a bank’s chatbot recognise all the different ways a customer might ask to open a new account or request personal loan information.
Appen services some of the biggest tech companies in the world, including Google, Facebook, Amazon and Microsoft, and is also growing its presence in China.
Results hit Appen share price
Appen recently released its annual report for the year ended 31 December 2020. The company reported revenues of almost $600 million for the year, an increase of 12% over FY19. Underlying earnings before interest, tax, depreciation and amortisation expenses (EBITDA) was up 8% to $108.6 million, although the underlying EBITDA margin fell 7 basis points to 18.1%.
While this was a solid result in a difficult year, sales fell short of analyst expectations, and the Appen share price slumped on the day the results were released.
Outlook
Uncertainty around the continued impacts of the pandemic, particularly during the first half of 2021, have weighed on Appen’s outlook. The company anticipates underlying EBITDA to be in the range of $120 million to $130 million, which would represent year-on-year growth of between 10% and 20% over 2020.
However, this outlook relies heavily on strong performance over the second half of 2021. Appen concedes that there are many short-term challenges for the company to contend with. These include uncertainty around post-COVID economic trends which may impact clients’ resourcing for AI development projects.
Appen share price snapshot
Despite having plummeted from its 52-week high, the Appen share price has managed to edge 1.4% higher over the past year. It has, however, fallen more than 44% over the last six months. Based on the current Appen share price, the company has a market capitalisation of around $2.14 billion.
Foolish takeaway
The market hates uncertainty, and with so much of Appen’s performance this year dependant on a potential post-pandemic economic recovery, many investors have decided to jump ship early. Only time will tell if they were right.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Rhys Brock owns shares of AFTERPAY T FPO, Altium, Appen Ltd, and WiseTech Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Altium, Amazon, Facebook, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd and WiseTech Global and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia owns shares of AFTERPAY T FPO and Xero. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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