Google profit

Appen shares plunge another 16% on earnings downgrade

The company has set a revenue forecast of $375 million ($577.5 million) to $395 million – consistent with a qualitative outlook statement provided to the market in August, but down significantly from 447.8 million it took in in 2021. Its earnings before interest, tax, depreciation and amortization also took a hit, with Appen now forecasting EBITDA before any currency impacts of $13 million to $18 million, a down 51% from consensus analyst estimates.

The reduction, the company said, was due to a decline in gross profit from a lower revenue base and a change in the revenue mix – in particular, a reduction in some larger, higher-margin projects and an increase in small, low-margin projects.

As the company suffers from declining work from its core customer base, Appen has branched out into new customer segments and geographies, including China.

This led Appen to reach a “record” number of projects in progress.

Chief executive Mark Brayan declined a request for an interview, but said on an analyst call that such projects tended to be smaller and did not make up for losses.

Despite this, he said the company remained committed to investing in new markets to diversify its revenue base away from the tech giants, and as part of this would continue to invest in its technology strategy to further automate the process of annotating data. data.

“There are two pillars in the strategy that are even more important now: diversifying income and improving productivity through the use of technology,” he said.

“Appen has a strong debt-free balance sheet. Additionally, the business has strong cash conversion and we remain confident in our ability to invest and execute our strategy during this transition period.

The company is now down 48% from five years ago, and more than 74% since the start of the year.

Garry Sherriff of RBC Capital Markets said the trading update was disappointing in many ways.

“Limited revenue visibility continues to be an issue for revenue and earnings forecasting,” he said.

“The pressure on the management team to execute strategy and demonstrate greater recurring revenue remains.”

In May, Appen was the subject of one of the shortest takeover bids in history, revealing that the owner of its main rival Lionbridge, the Canadian company Telus International, had launched an unsolicited non-binding indicative offer of 1 .2 billion, to announce less than 10 hours later that Telus had revoked its proposal and the conversations had ceased.

Negotiations had been going on in the background for a few weeks, and Appen was left dazed and confused. Telus never revealed why it walked away, but it was speculated that it was scared off by a commercial update provided by Appen.

Appen also faces competition from business processing outsourcing (BPO) services in India, which companies are increasingly using for their data annotation needs.

Husband and wife couple Chris and Julie Vonwiller (who founded the company) remain one of its major shareholders with 7.5% of the company.

Mr. Vonwiller, who was formerly chairman of Appen, declined to comment on Thursday but said in June he believed Appen could retain its market leadership.

“I don’t subscribe to theories that annotated data will somehow be replaced by machine automation. I think we will always have a human in the loop of data annotation requirements,” he said.

“I believe Appen’s position in the market in terms of size, scale and product line should maintain market leadership if they can execute the necessary agility and cost structure.”