Appen shares crash 37% on huge Google blow

Unfortunately, it goes from bad to worse for Appen Ltd (ASX: APX) and its shares on Monday.

The embattled artificial intelligence (AI) data services company has been dealt an almighty blow this morning.

This has led to the Appen share price X.

What’s going on with Appen shares?

Investors have been hitting the sell button today after the company was rocked with the loss of a major customer, Alphabet (NASDAQ: GOOG) subsidiary, Google.

According to the release, as part of a strategic review process, Google will be terminating its global inbound services contract with Appen. This will result in the end of all projects with Appen by 19 March 2024.

Appen stresses that it had no prior knowledge of Google’s decision to terminate the contract.

How big a blow is this?

The release notes that in FY 2023, Appen’s revenue from Google was US$82.8 million at a gross margin of 26%.

As a comparison, the company’s unaudited results for FY 2023, which have been released today, reveals revenue of US$273 million for the year.

This means that Google’s global inbound services contract represents approximately a third of its current revenue. The company commented:

The news is unexpected and disappointing, particularly considering the progress made against Appen’s transformation and performance in November and December 2023.

FY 2023 performance

As mentioned above, Appen released unaudited figures for FY 2023. It expects to report:

• Revenue of US$273 million
• Underlying EBITDA loss of US$20.4 million

Though, as it also alluded to above, management had made some good progress on its earnings during November and December.

For these months, underlying EBITDA was positive at US$3.2 million and US$2.3 million, respectively.

But that progress is somewhat meaningless now that Appen has lost an US$80 million+ contract. Somehow, it will have to find a way to cut costs further to offset this loss and hope that other big customers don’t follow Google to the exits.

If they do, the days of Appen shares remaining on the ASX boards could be numbered.

The post Appen shares crash 37% on huge Google blow appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor James Mickleboro 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 Alphabet and Appen. The Motley Fool Australia has recommended Alphabet. 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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