Down 68% so far in 2022, can Appen shares ‘get through this?’

The Appen Ltd (ASX: APX) share price is deep in the red year to date, currently down almost 68%.

That’s more than double the loss of the S&P/ASX 200 Info Technology Index (ASX: XIJ) which has lost around 31%.

And it’s more than eight times the loss of the broader market, with the S&P/ASX 200 Index (ASX: XJO) down 8% in 2022 so far.

Certainly, the artificial intelligence (AI) technology company is not alone in its struggles.

Tech sector challenges

Technology stocks went through a sector rotation after climbing to new all-time highs near the tail-end of 2022. Valuations of these companies surged during the pandemic, then carried higher on the euphoria of a bull market rally for equities. This was courtesy of stimulus measures in the US and record high user and engagement metrics with people being trapped in their homes.

Tech shares did very well during the pandemic but faltered once the challenges of the post-COVID world started to unravel. As surging inflation, rising interest rates, and a slowdown of global growth started to bite, investors began to question their investments in these highly overvalued companies. As a result, many changed their risk appetites from growth to value shares.

An additional headwind that Appen faced was Candian firm Telus withdrawing a $1.2 billion takeover bid in May.

This is the narrative the company’s CEO Mark Brayan has been tasked to challenge as he attempts to turn the Appen share price around.

Brayan was interviewed by The Australian, where he outlined his strategy. Let’s piece together the highlights and see if Appen could be on the rebound.

What did Appen CEO Mark Brayan say?

Brayan stated the company has its eyes on expanding beyond the tech sector in the near future, stating:

We want to grow beyond our top five customers. We rely very heavily on the tech giants. Our customers like us to keep the work we do with them confidential, so we don’t name those companies, but nonetheless they’re the biggest tech companies in the world, and they comprise a very large share of our revenue.

But clearly, we need to have a broader customer base, and we’re working on that. This chapter for us is about growing beyond the tech giants.

Brayan also commented on the effect of the sector rotation and its growth changing to a lower gear. He also outlined plans for getting Appen back on its feet:

When you’re in a high-growth phase, the market rewards you, and when the growth slows down, at a time when there are, you know, other pressures on the sector, they compound to put the pressure on. We are reviewing all areas of the business in order to accelerate productivity improvements and margin expansion. We’re looking at every aspect of the business to improve those elements.

Brayan also noted an opportunity for expanding AI facial recognition technology.

There are some really awful examples of AI, for example facial recognition doesn’t work for certain ethnicities and in certain countries. What we’re super passionate about is providing high-quality data to our customers so their AI platforms perform really well.

Most recently, Appen released its state of AI and machine learning report that said 42% of its target market finds sourcing accurate data “very challenging” for training AI models.

Appen chief product officer Sujatha Sagiraju said:

Sourcing high-quality data is critical to the success of AI solutions, and we are seeing organizations emphasise the importance of data accuracy.

Appen share price snapshot

The Appen share price is down 18% over the past month. By comparison, the S&P/ASX 200 Index (ASX: XJO) is down 2.13% over the same period.

Shares of the data company currently trade for $3.61 each. That’s a long way from their high of more than $40 a share in August 2020.

The company’s current market capitalisation is roughly $446 million.

The post Down 68% so far in 2022, can Appen shares ‘get through this?’ appeared first on The Motley Fool Australia.

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Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Appen Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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