The Appen Ltd (ASX: APX) share price has dropped a lot this year. Is it a cheap opportunity?
Appen has seen its shares fall 16% in a month, 33.4% in six months and 59% since the start of 2021. The Appen share price has sunk 71% from October 2020.
Appen’s latest result
Investors often use profit and/or the outlook to determine what price to value Appen at.
In the ASX tech share’s FY21 half-year result, it said that group revenue fell 2% to $196.6 million because of lower global services revenue because global customers allocated resources to new, non-advertising projects in the first half of 2021.
There were growth in some parts of the business. Global product revenue increased 15.2% to $22.3 million, as global customers invested in new AI use cases supported by Appen’s annotation platform and tools. New markets revenue was $47.8 million, an increase of 31.5%, driven by China, new enterprise customer wins customer wins and product-led growth. China FY21 half-year revenue was almost six times bigger than the first half of FY20.
The gross profit margin declined because of the customer and project mix, as large legacy project volume growth slowed and early stage projects commenced.
Appen said that its annual contract value (ACV) was $119.6 million, an increase of 16%.
But, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell 14.3% to $27.7 million. Management attributed this to higher costs related to growth investments.
Underlying net profit after tax (NPAT) fell 35% to $12.5 million. Appen said that there was increased amortisation associated with investment in product development. Statutory net profit, which includes restructuring and acquisition costs, fell 55.1% to $6.7 million.
Outlook and Quadrent acquisition
As mentioned, the outlook can have an impact on the Appen share price.
After the acquisition of Quadrant, Appen reduced its EBITDA guidance range by $2 million to $81 million to $88 million. EBITDA is expected to be at the low end of that range because of ad-related project impacts.
Year to date revenue plus orders in hand for delivery in FY21 is approximately $360 million as at August 2021.
Quadrant was described by Appen as a global leader in mobile location and point of interest data. Management said the acquisition expanded the breadth of Appen’s data capabilities and product offering for existing customers and opens new growth opportunities in the global location intelligence market.
Is the Appen share price a buy?
The broker Macquarie Group Ltd (ASX: MQG) thinks not, with a neutral rating and a price target of $11.80. Macquarie feels that Appen’s management are too hopeful about expectations. It was one of the first brokers to have a negative outlook on Appen a while ago.
But Citi thinks Appen is a buy with a price target of $18.80. That represents a potential rise of almost 80% over the next 12 months. The broker likes its new projects as well as the acquisition of Quadrant.
On Citi’s numbers, Appen shares are valued at 21x FY22’s estimated earnings.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Appen Ltd. The Motley Fool Australia owns shares of and has recommended Appen Ltd and Macquarie Group Limited. 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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