News Corporation (ASX: NWS) shares are gaining this morning following the release of the company’s third-quarter results. At the time of writing, the News Corp share price is trading 2.57% higher at 31.49.

Let’s take a look at the Murdoch-owned media giant’s results for the quarter ended 31 March 2021.

News Corp’s latest results

Over the quarter just been, News Corp recorded earnings before interest, tax, depreciation and amortisation (EBIDTA) of $298 million ­– up from the previous year’s $242 million.

News Corp’s revenue was 3% higher than the third quarter of 2020. Its net income was $96 million, compared to a net loss of $1 billion in the previous comparable period.

The company ended the quarter with $762 million of cash in the bank.

News Corp’s net income per share was 13 cents, a much better result than the third quarter of 2020, which posted a $1.24 per share loss.

Its best performing segment was Dow Jones, home to such titles as The Wall Street Journal. Dow Jones’ EBITDA was 61% higher than the previous comparable period, driven by increased digital advertising, subscriptions, and continued growth at its Risk & Compliance publication.

The company expects costs in the fourth quarter to increase by around $20 million when compared to the same quarter of last year. It stated this will likely be caused by higher employee costs and ongoing investment spending. News Corp says this is the only change the company expects of its previously announced outlook, posted in its half-year results.

Where did News Corp make its money this quarter?

Income-driving segments

News Corp’s digital real estate services revenue was 34% higher than the third quarter of 2020 – bringing in an extra $90 million. The gains were mostly driven by News Corp’s subsidiary Move Inc., home of realtor.com. Move raked in $162 million through the quarter.

Kayo, Binge, and Foxtel also recorded increased revenues. Though, according to News Corp, the streaming services lost around $7 million from lower hotel occupancy as a result of COVID-19.

Revenue from News Corp’s book publishing segments also performed strongly, bringing in 19% more revenue than the third quarter of 2020. The increase was partially driven by Julia Quinn’s Bridgerton series, perhaps due to the popularity of its television series adaptation.

News media’s loss

Of the media giant’s business segments, all except for news media reported revenue growth.

News Corp’s news media segment recorded a 25% reduction in revenue – bringing in $183 million less than it had in the previous comparable quarter.

The company’s news media advertising revenue decreased by 50% – or $215 million. The falls were primarily driven by the ongoing impact of News Corp’s divestiture of News America Marketing in May 2020.

It was also impacted by a reported drop in print advertising and the closure or digital transition of regional and community titles.

This was despite a 13% increase in subscriptions and circulation of News Corp’s news titles and a $55 million gain from foreign currency fluctuations.

Commentary from management

News Corp chief executive Robert Thomson commented on the company’s third-quarter results, saying:

The financial year is on a trajectory to be the most profitable since our reincarnation in 2013. This highlights the transformed character of the Company, with improved revenue performance and a 23 percent increase in profitability in the third quarter.

We have reached historic deals with Google and Facebook, and continue our international campaign to reset the terms of trade for premium journalism. The cooperation in recent weeks with the Google team has certainly been productive and we look forward to further engagement with Facebook. These landmark agreements have meaningfully and materially changed the media landscape.

News Corp share price snapshot

Today’s boost to the News Corp share price has added to its recent solid performance on the ASX.  

Currently, the News Corp share price is trading around 34% higher than it was at the start of 2021. It’s also around 100% higher than it was this time last year. 

The media company has a market capitalisation of around $1.1 billion, with approximately 590 million shares outstanding. 

More reading

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. Suzanne Frey, an executive at Alphabet, 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. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), 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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It certainly has been an eventful week for the Lion Energy Ltd (ASX: LIO) share price. Prior to today, the green hydrogen company’s shares were up an incredible 44% since the start of the week.

However, it is giving back a good portion of these gains on Friday morning. In early trade the Lion Energy share price is down a sizeable 23% to 7.5 cents.

Why is the Lion Energy share price crashing lower?

This morning the company returned from a trading halt following the release of a response to a query from the ASX.

That query sought more information relating to the company’s recent green hydrogen strategy presentation.

While the company provided a thorough response, some investors may be disappointed with its plans. Others could be taking profit off the table today following the strong gains earlier in the week.

How did Lion Energy respond?

Lion Energy has released an additional presentation with further clarification on its plans and progress.

It commented: “To date, Lion has progressed its Hydrogen Strategy by assessing the hydrogen industry and growth opportunities in Australia and undertaking a preliminary and high-level review of the opportunities which may be available for Lion to participate in this industry. Lion has registered a business name (Lion H2 Energy) which will be used to further progress Lion’s Hydrogen Strategy. No material costs have been incurred in progressing the Hydrogen Strategy to date.”

The company is now at stage two of its strategy. It explained that this stage includes a number of activities that will be undertaken at a cost of approximately $0.5 million over a six-month period.

This includes the establishment of a team of hydrogen experts, which will form a Hydrogen Advisory Board. It will also see the appointment of experts to systematically analyse optimal electrolyser locations in Australia and the review of the best value and fit for purpose solar, wind and electrolyser technologies.

In addition, the company will review potential opportunities in which Lion may be able to combine its expertise and resources with a suitable market and partner to progress a green hydrogen development using the identified electrolyser locations and appropriate technologies.

Finally, it may also expand the scope of the Advisory board to review opportunities in H2 distribution and hydrogen fuel cells for heavy equipment and vehicles.

After which, there are stages three and four, which include feasibility studies and then the development of facilities.

Plenty of work ahead for the company!

More reading

• Here’s why the Lion Energy (ASX:LIO) share price is in a trading halt
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• Here’s why Lion Energy (ASX:LIO) shares rocketed 132% this morning

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Pfizer (NYSE: PFE) had a fine first quarter by many standards. Fueled by widespread demand for its BNT162b2 coronavirus vaccine, it crushed both trailing and forward analyst estimates.

One prognosticator following the company, however, isn’t ready to pop the Champagne. On Thursday — two days after those quarterly results were published — Vamil Divan of Mizuho Securities downgraded his recommendation on the stock from buy to neutral. He maintained his $42 per share price target, which is about 7% above where it’s currently trading.

The analyst credited Pfizer with a “stunning beat” in his new research note. However, he wrote, “Cash flows from COVID-19 vaccine sales provide Pfizer with greater optionality, but we wait to see how Pfizer allocates that capital before assessing whether they have improved their 2026-2030 outlook.”

As with any pharmaceutical company, Pfizer’s future depends greatly on its pipeline. Since much of the focus on Pfizer as a company and as a stock has, understandably, been on BNT162b2 over the past year, more attention needs to be paid to its research and development activities.

“While Pfizer’s near-term outlook remains strong and has been boosted by their COVID-19 vaccine, we believe it will be important for these pipeline catalysts to deliver in the coming months in order for investors to gain more comfort with Pfizer’s outlook beyond the next four years and drive Pfizer shares meaningfully higher,” Divan wrote.

BNT162b2 is currently in widespread use in countries around the world, and particularly in the U.S., where it is one of only three coronavirus vaccines authorized for emergency use by the FDA. However, both cases and fatalities have been dropping significantly in the country.

Pfizer’s shares closed Thursday’s trading session down by 1%, against the 0.8% rise of the S&P 500 index.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Eric Volkman has no position in any of the stocks mentioned. 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 Bruce Jackson.

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The IOOF Holdings Limited (ASX: IFL) share price is on the move this morning.

At the time of writing, the financial services company’s shares are up 1.5% to $3.59.

Why is the IOOF share price climbing?

Investors have been buying IOOF’s shares following the release of an announcement after the market close yesterday.

That announcement reveals that the company’s “transformational” acquisition of the MLC business from National Australia Bank Ltd (ASX: NAB) is progressing well.

The agreement to acquire MLC for $1,440 million, which was announced in August 2020, was subject to the satisfaction of certain conditions precedent. One of those conditions was the receipt of approval from the Australian Prudential Regulation Authority (APRA).

According to the release, this approval has been granted, which means all regulatory approvals have now been received.

IOOF’s CEO, Renato Mota, commented: “APRA’s approval satisfies the final regulatory condition precedent necessary to complete the acquisition of MLC. Central to our engagement with APRA was demonstrating how IOOF’s strategic intent will deliver improved member outcomes.”

“This transformational acquisition will create one of the industry’s largest advice-led wealth management organisations. MLC will deliver a step change in our scale and reach, providing substantial benefits to our clients, members and ultimately our shareholders. We look forward to continuing to challenge ourselves to deliver accessible, affordable and sustainable advice-led wealth management outcomes for the benefit of all Australians,” he concluded.

The two parties expect the deal to close by the end of the month.

How is IOOF funding the acquisition?

The good news is that the funds for the acquisition are already in place. This follows the completion of an equity raising in September that raised approximately $1,043.8 million.

Though, it is worth noting that the equity raising wasn’t a huge success. In fact, retail shareholders took up just 2.8 million shares out of ~88 million shares made available to them through a retail entitlement offer.

This left the underwriters with a significant number of shares to dispose of. Which may explain why the IOOF share price has underperformed materially since the announcement of the acquisition.

When the IOOF share price went into a trading halt prior to the announcement, it was fetching $4.51. This means the current IOOF share price is a disappointing 20% lower that this level today.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Bruce Jackson.

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The Goodman Group (ASX: GMG) share price is pushing higher on Friday morning.

At the time of writing, the integrated property company’s shares are up 1.5% to $19.48.

Why is the Goodman share price pushing higher?

Investors have been buying Goodman’s shares following the release of its third quarter operational update.

According to the release, Goodman’s third quarter result reflects a strong operating performance underpinned by customer led demand for its assets in its chosen markets.

However, it does note that changing consumption trends across the physical and digital spaces are fundamentally impacting demand. In response, Goodman is developing new space particularly through multi-storey and higher intensity buildings within its urban locations.

Goodman’s CEO, Greg Goodman, commented: “We have concentrated our portfolio in high barrier to entry markets where land is scarce and use is intensifying. With a focus on long-term customer requirements, we are developing to meet demand in these consumer markets, providing essential real estate infrastructure for our customers.”

“Our results demonstrate resilience and growth in cashflows underpinned by this approach. The convergence of structural change, strong fundamentals and quality investments should continue to deliver positive performance and profitability for Goodman.”

Financials

At the end of the period, Goodman had $52.9 billion of total assets under management (AUM). This is up from $51.8 billion at the end of the first half.

Another positive was that its like-for-like net property income (NPI) growth was 3.3% across its managed Partnerships, with a sky high 98% occupancy rate.

Goodman also revealed that it has plenty of work in progress to support future growth. At the end of the period, it had $9.6 billion of development work in progress (WIP).

Guidance reaffirmed

Also giving the Goodman share price a boost today was management confirming that it is performing in line with full year expectations.

As a result, Goodman is expecting its FY 2021 operating profit to come in at $1.2 billion, representing earnings per share growth of 12% on FY 2020.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Bruce Jackson.

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The Adore Beauty Group Ltd (ASX: ABY) share price is rebounding on Friday morning.

In early trade, the online beauty retailer’s shares are up over 7% to $3.98.

This follows a 19% decline by the Adore Beauty share price on Thursday.

Why did the Adore Beauty share price crash lower yesterday?

The Adore Beauty share price was sold off yesterday following the release of a third quarter update.

Although the ecommerce company revealed that it expects to report revenue growth of 43% to 47% in FY 2021, this fell a touch short of expectations.

Also weighing particularly heavily on its shares was commentary around its active customers. Adore Beauty revealed that active customers at the end of the third quarter were 687,000.

While this is a 69% increase on the prior corresponding period, it is down from 777,000 active customers at the end of the first half.

However, this metric is slightly misleading and the company has sought to add more colour to it this morning.

What did Adore Beauty say?

This morning Adore Beauty clarified that the 687,000 active customers at the end of the third quarter was reflective of a nine-month period, rather than a 12-month period. Hence the discrepancy between these numbers and those reported with its half year results.

It explained: “As stated in the Trading Update dated 6 May 2021, Adore Beauty had 687,000 active customers at the end of Q3 FY21. This number is reflective of a 9 month period, rather than a 12 month period. The relevant PCP comparison is 406,000 active customers over the 9 months to 31 March 2020. Therefore, there was a 69% increase when comparing 9 months to 31 March 2021, with the same nine-month period in the previous financial year.”

However, what does remain unclear, is why the Adore Beauty decided to represent its numbers in this way.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Adore Beauty Group Limited. 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 Bruce Jackson.

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The REA Group Limited (ASX: REA) share price will be on watch after the release of the company’s highly anticipated third-quarter update. At the market’s close on Thursday, the REA share price was trading at $153.84, down 1.23% for the day.

So, will the company’s results live up to investor expectations against the backdrop of a roaring property market? Let’s take a look.

Why the REA share price is in focus

The REA share price surged 12% in May into near-record territory, perhaps in anticipation of a strong quarterly result. 

It’s been a tough quarterly reporting season with many of the so-called ‘COVID-19 winners’ facing tough comparables against supercharged FY20 earnings. 

From ASX e-commerce shares such as Kogan.com Ltd (ASX: KGN) to healthcare shares such as ResMed Inc (ASX: RMD), seemingly positive results have resulted in sharp, unforgiving selloffs by investors. 

Third-quarter highlights 

REA Group delivered solid third-quarter results, with revenue increasing by 8% (excluding acquisitions) to $225.6 million. Meanwhile, earnings before interest, taxes, depreciation, and amortisation (EBITDA) increased by 13% to $123.3 million. 

From a year-to-date perspective, revenues edged 1% higher on the prior corresponding period to $655 million, while EBITDA was 10% higher to $415.1 million. 

REA reported that the Australian residential property market showed strong signs of recovery during the quarter, particularly in the months of February and March. The update highlighted a 2% national decline in residential listings in 1Q21, before a respective 10% and 8% increase in the second and third quarters. 

Roaring property prices and heightened buyer interest has seen a surge in average monthly website visits. Realestate.com.au recorded 130.7 million average monthly visits, up 47% year on year, with a record 137.3 million visits in March. The platform was also seeing growth in the uptake of the app, with total app downloads of 10.8 million, up 10% year on year. 

Elsewhere, the company’s commercial and developer revenue increased due to the continued growth in new project commencements, up 14% for the quarter. 

Financial services revenues declined due to a reduction in partnership revenue, with its current National Australia Bank Ltd (ASX: NAB) agreement performance payments reaching maturity in September 2020. 

The company’s Asia business saw a decrease in revenue for the quarter, as Malaysia was heavily impacted by mobility restrictions as a result of the pandemic. 

In December, REA took a punt on the emerging Indian real estate sector with a substantial stake in Elara. In line with expectations, the acquisition delivered $9.5 million in revenue and an EBITDA loss of $7.3 million. The company anticipates Elara delivering 2H21 revenues of $12 to $17 million and an EBITDA loss of $15 to $20 million. However, the worsening COVID situation in India could see weaker than anticipated results. 

Management commentary 

REA Group chief executive officer Owen Wilson commented:

Australia’s property market is in full flight, with this positive momentum contributing to strong listings growth for the quarter. Once again, realestate.com.au set new audience records and delivered over 3 million buyer enquiries per month, an increase of 82% for the quarter.

Current trading 

The strength of the residential property market carried over into April, supported by record-low interest rates and improving consumer confidence. REA’s current trading highlights a 98% year-on-year increase in national residential listings, driven by a respective 127% and 116% increase in Melbourne and Sydney. 

Despite the strong year-on-year increase, the company flagged that: 

While the market dynamics are strong, these growth rates are exaggerated by the severe COVID related declines experienced in April 2020. Listings in that month were down 33% compared to April 2019.

REA share price snapshot

It will be interesting to see how the REA share price performs today and whether the company’s relatively strong current trading results are tempered by its weaker figures from last year.  

REA shares are currently up by just 3.35% in 2021 however they have gained more than 74% over the past year. Based on the current REA share price, the company has a market capitalisation of around $20 billion.

More reading

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Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd, REA Group Limited, and ResMed Inc. 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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The Webjet Limited (ASX: WEB) share price has been a poor performer this week.

Since the start of the week, the online travel agent’s shares have fallen a disappointing 11%.

Why is the Webjet share price sinking this week?

The decline in the Webjet share price appears to have been driven by the release of an update out of one of its competitors.

Earlier this week, Flight Centre Travel Group Ltd (ASX: FLT) released a trading update and revealed that it expects to post a second half loss in line with the one it recorded during the first half of ~$250 million. This was materially more than the market was expecting.

In addition to this, concerns about rising COVID-19 cases across the world appears to be weighing on sentiment in the travel sector.

Is this a buying opportunity?

According to a note out of Goldman Sachs, this could be a buying opportunity for investors.

This morning the broker retained its buy rating and $7.00 price target on the company’s shares.

Based on the current Webjet share price, this represents potential upside of 57% over the next 12 months.

What did the broker say?

Goldman commented: “Since we initiated on FLT and WEB in March, there has been 33.7mn new cases of COVID reported across the world driven by a new wave in India. However, on the flipside, vaccination progress has been encouraging, especially in the USA and UK with an estimated 63% and 61% of the population achieving immunity (vaccination or prior infection) as of early May 2021.”

“Overall, the travel recovery is tracking in line with expectations albeit with interim declines (Feb) and strong recoveries (Mar). The December 2019 indexed activity tracker, based on monthly IATA data, for domestic Australian airline travel suggests that activity has improved to 53.6 in March 2021 vs. 35.9 in Dec 2020. We expect activity in April to have been in line with March but recovery signs leading into the Northern Hemisphere summer period, a key holiday travel period, looks encouraging. We make no changes to our travel activity forecasts for FLT and WEB.”

In light of this, the broker continues to believe that Webjet is well-placed to return to growth in the not so distant future as the travel market recovers.

More reading

• To sell or not to sell? 3 brokers weigh in on Webjet (ASX: WEB) shares
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• Are ASX travel shares about to go through a big recovery?
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Apple (NASDAQ: AAPL) has been in the news a lot lately. The company announced second-quarter earnings last week, crushing Wall Street’s expectations across the board. And this came on the heels of its spring launch event, where Apple unveiled a range of new and updated products. Add in the iOS update with new privacy controls that have some companies complaining. Then there’s the global semiconductor shortage, which threatens several industries, including consumer electronics.

Given the whirlwind of headlines surfacing daily, it’s easy to lose track of what actually matters. To simplify the situation, here are three things investors need to know about Apple right now.

1. Apple’s products are in high demand

Product revenue surged 62% year over year in the second quarter, driven by strong demand across the iPhone, iPad, and Mac product lines. In fact, Mac computers set an all-time revenue record. During the earnings call CEO Tim Cook said: “The last three quarters for Mac have been its best three quarters ever.”

Cook attributed this success to the M1 chip, Apple’s custom-built silicon introduced last year to replace Intel processors in the Mac Mini and MacBooks. Notably, the ARM-based M1 delivers 3.5 times faster CPU performance and twice the power efficiency of previous Mac generations.

Moreover, according to JPMorgan analyst Samik Chatterjee, the M1 chip could also reduce the cost of production by $75 per unit. In other words, Apple’s silicon delivers a better experience for consumers, while reducing expenses for the company.

Going forward, that dynamic could make Apple more profitable. Some evidence of that can be found in the fact that product gross margin jumped 100 basis points in the second quarter, reaching 36.1%. But that figure may get even bigger in the coming years. That’s because Apple recently debuted a new lineup of M1-powered iMacs and a 5G-enabled iPad Pro (also with an M1 chip) at its spring launch event in late April.

Investors should pay attention to the gross margin on Apple’s hardware in the coming quarters to see if these new devices drive cost efficiencies.

2. Apple’s services business is gaining momentum

Apple’s services business also delivered all-time record results in Q2, as year-over-year sales growth accelerated to 27%. While that figure isn’t as dramatic as the 62% uptick in product sales, it still bodes well for the future.

Services revenue comes at a much higher gross margin — roughly 70% in the last quarter. In other words, as Apple services gain traction — think the App Store, Apple TV+, Apple News+, Apple Arcade, and Apple Music — the company will become more profitable as a whole.

To drive growth, Apple is continuing to expand its offering. For instance, it just added more than 30 new games to Apple Arcade, bringing the total to over 180. It also updated Apple Fitness+, bringing new workouts and trainers to the platform. 

Going forward, Apple plans to continue investing in its services business. It gives the company another way to monetize its global installed base of over 1.65 billion devices, and the revenue is much less cyclical than product sales. Investors should pay attention to the company’s success here.

3. The semiconductor shortage may be an opportunity

Over the last year, the COVID-19 pandemic sparked demand for PCs and smartphones as consumers transitioned to remote work. That, combined with residual effects of the U.S-China trade war, has triggered a global semiconductor shortage. Today demand far exceeds supply, and experts think the situation may take two years to resolve.

Samsung recently warned investors that mobile sales and profits are likely to fall in the next quarter, citing semiconductor supply as one of the drivers behind that trend. Apple also referenced the situation, noting that supply constraints would have a $3 billion-to-$4 billion impact on revenue next quarter. However, Apple CFO Luca Maestri said this headwind would primarily affect the iPad and Mac.

In other words, Apple iPhones may fare better than Samsung smartphones in the near term. How is that possible?

Apple is famous for its supply chain management. The company’s Supplier Code of Conduct details the high standards suppliers must meet, addressing everything from ethics to environmental impact. As a result, research firm Gartner has ranked Apple’s supply chain as the best in the world for the last seven years.

If Apple is able to use that advantage to deliver strong iPhone sales next quarter, it could help the California company take market share from Samsung — as it did in 2020.

Smartphone Market Share	2019	2020
Apple	14%	16%
Samsung	22%	20%

Data source: Canalys.

Investors should pay attention to this situation as it unfolds. Management will almost certainly provide commentary on the supply shortage at the end of the next quarter.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• ASX 200 Weekly Wrap: Shares have average week but a great month

Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Gartner and Intel and recommends the following options: long January 2023 $57 calls on Intel, short March 2023 $130 calls on Apple, long March 2023 $120 calls on Apple, and short January 2023 $57 puts on Intel. The Motley Fool Australia has recommended Apple. 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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Appen Ltd (ASX: APX) shares have been unloved over the last 9 months, and yesterday was no exception. Following the release of presentation materials for the Macquarie Australia Conference, shares in the artificial intelligence (AI) dataset annotation company hurled themselves downwards.

By the end of the session, the Appen share price had fallen 21.1% to $11.63. So, what is all the commotion triggering Appen to collapse to a multi-year low?

What’s ‘Appening’ to the former ASX tech darling?

Data annotation getting smarter

A concern that has been floating around the company for some time is disruption. This is odd, considering Appen is a tech company operating in the AI space.

While Appen does have its own technology that increases the efficiency of data labelling, it relies on a 1 million-strong crowd of contractors. These people manually annotate the training data sold to Appen’s clients. When you think about it, this sounds somewhat manually intensive for a tech company.

Appen has dismissed concerns of its manual annotation becoming outdated over the years. But with growth flatlining, has the disruption already begun?

One space that Appen provides its services to is the evolving autonomous driving industry. Training data is used to improve the AI required to navigate vehicles with minimal human intervention.

However, Tesla Inc (NASDAQ: TSLA) has been working on its “Dojo” supercomputer for streamlining this process. Still in development, Dojo will be optimised to train neural nets, and Elon Musk has stated they will make the technology available to other companies.

Dojo, if pulled off, could have the potential to substantially exceed the speed and accuracy of current tech-assisted human annotation. That kind of disruption is one possible reason investors are appearing less enthusiastic about Appen’s future potential.

Too many eggs in one basket

Another aspect that poses a risk for Appen is its customer concentration. It has long been rumoured that a substantial portion of revenue is derived from Google and Microsoft. Whilst this hasn’t been formally acknowledged by Appen, broadening its customer base is a focus for the company.

Both Google and Microsoft are tech titans themselves. While these companies have a major data thirst now, there’s no telling when that might disappear. If either of them was to innovate beyond the need for manually annotated data, that would be a heavy blow to Appen’s revenue.

Having said that, much of this is anecdotal – operating in a theorised future of ‘what ifs’ and ‘could bes’ – but as the business’ growth slows, these are likely the front-of-mind concerns for many investors. And given the 60% decline in the Appen share price over the past year, the edginess is unsurprising.

More reading

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• ASX 200 down 0.35%; NAB half year results, Nearmap crashes on legal threat
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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. Mitchell Lawler owns shares of Appen Ltd, Macquarie Group Limited, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Microsoft, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Appen (ASX:APX) share price: Is the disruptor becoming the disrupted? appeared first on The Motley Fool Australia.

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