Pinned straw:
10-May-2023: I agree with your sentiment Andrew - definitely in the "too hard" basket, although perhaps that should be "why would you bother?" basket. I guess there's people who like to take their winnings from one game and bet it all at the casino on another game. Go hard or go home? High risk appetites. Yeah, Nah! Not for me.
Not all charts mirror the outlook of the underlying company and it's future profitability, but I think Appen's chart comes close... over the last two and a half years.
Prior to that, there was plenty of hype, they were a fast growing tech company, one of our WAAAX Stocks (Australia's answer to the FAANG/MAMAA companies in the US)... Except that Appen wasn't really a tech stock at all, it was more of a glorified labour hire company, and the demand for their labour (data input people used to label items in pictures to help teach computers how to recognise stuff - for example) was declining, not expanding, as computers began teaching themselves without as much (or any) human input. Many have called Appen a company that is past its prime, had its day, lost its moat, a company in decline, etc, and others have said that the pronouncement of the death of Appen was a tad premature, and, sure, they've still got a pulse, but why would you be putting fresh money into this company, unless you had a gambling addiction...
It's easy to see where that bubble of hype burst...
July 2020. This was probably one of those companies that if I was holding them, I would have thought, great, they're getting cheaper, time to load up, the market always overreacts, right?! Back the truck up, a bargain at $20/share, wow, so cheap at $10/share. Now $3.19. Only that was yesterday. Today they dropped another -28.21% (being 90c/share) to close at $2.29.
I wasn't holding them. But if I was, I hope I would have listened to the people who were warning us not to believe the hype, like Claude Walker - on May 23rd, 2021, when Appen were still trading at around $13 to $14/share - Appen closed at $14.51 on June 21st 2021, four weeks after Claude's Article - see here: The Truth About The Appen (ASX: APX) Business Model - A Rich Life
Plain Text: https://arichlife.com.au/the-truth-about-the-appen-asx-apx-business-model/
Claude wasn't alone, there were others warning that worse was yet to come for Appen, however Claude was the most convincing one for me, and if I had been holding APX, I would have sold them all then - in late May 2021.
Here's what the AFR had to say today: ASX APX: Appen shares plunge 26pc as revenue drops (afr.com)
Plain Text: https://www.afr.com/technology/appen-shares-plunge-27pc-on-weaker-revenue-20230510-p5d793
Appen shares plunge 27pc on weaker revenue
by Tess Bennett, Technology reporter, AFR, May 10, 2023 – 5.11pm
Shares in artificial intelligence data services company Appen dived 27 per cent on Wednesday, its worst drop since August last year, after it warned that revenue will decline materially this year on a slowdown in the broader technology market.
The company said ongoing challenges facing customers had led to a steep drop in revenue and earnings so far this financial year, causing the stock to fall from $3.19 to $2.33 following its trading update.
Armughan Ahmad took over as the CEO of Appen in January, tasked with turning around the company.
For the four months ending April 30, the company reported revenue of $US95.7 million ($141.6 million), down 21.4 per cent on the same period last year. Gross profit was down 24.7 per cent to $US35.8 million and the company reported an underlying EBITDA loss of $US12.4 million.
The business will embark on a $US36 million cost-reduction program to return Appen to profitability, and flagged a new strategy to diversify revenue with a focus on the advancements in generative artificial intelligence.
Appen provides data annotation services that enable the world’s biggest tech companies to develop the AI algorithms that power their search engines, voice bots, self-driving cars and other applications.
The company’s revenue base is concentrated among its core customers, which has left Appen vulnerable to any reduction in customer spending.
Appen’s revenue was hit hard when Apple introduced iOS privacy changes in 2021 that let users opt out of being tracked by apps, causing the company’s clients, including Facebook and Google, to pull back on spending in digital advertising-related AI.
Necessary steps
Appen chief executive Armughan Ahmad, who took over in January, said the initiatives announced on Wednesday were expected to return the business to underlying EBITDA profitability on an annualised run-rate basis in calendar year 2023.
“We are highly focused on the areas that are within our control and have taken the necessary steps to align our cost structure with current revenue expectations and now expect to exit 2023 as an underlying EBITDA and cash EBITDA positive business,” he said.
At its peak in August 2020, Appen was fetching more than $40 a share and had a market capitalisation around $5 billion, but it has been one of the weakest performing stocks on the ASX as its shares have fallen alongside its profit.
RBC Capital Markets analyst Garry Sherriff questioned the company’s outlook and expected return to profitability on account of its string of downgrades.
“We had previously flagged the risk of rebasing expectations with the appointment of new CEO and CFO. Combined with major tech customers facing headwinds has resulted in a guide which is a material downgrade to 1H23 consensus estimates,” Mr Sherriff said.
“Additional cost-out of $36 million expected to be delivered this year to return to profitability, however, lacks detail as to the source of cost savings.”
Appen previously identified $US10 million in cost savings and launched three new products extending its services into the hot new field of generative AI.
The company, which uses a crowd of 1 million people to label data that feeds its AI algorithm, said its expertise could be adapted to emerging uses for large language models.
“Generative AI models like OpenAI’s ChatGPT require large volumes of human feedback to create experiences that are comparable to humans and avoid risks such as hallucination, bias, and toxicity,” the update said.
Appen will provide more detail on its strategy at the company’s investor day, which will take place after its annual general meeting on May 26.
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[Feb 27th, 2023]16-May-2023: And now a CR when their SP is $2.30. Raising $60m @ $1.85 per share, an almost 20% discount to Appen’s last closing price and light years away from the $40.08 peak during the heady days of the pandemic equity market boom. That last bit was straight out of today's AFR coverage of this CR: Appen Group announces $60 million equity raising to latch on to new artificial intelligence gold rush (afr.com)
Plain Text: https://www.afr.com/chanticleer/desperate-tech-dog-appen-wants-to-latch-onto-new-ai-gold-rush-20230516-p5d8q8
Chanticleer
Desperate tech dog Appen wants to latch on to new AI gold rush
Once upon a time, Appen was a star in the ASX’s tech scene. But 10 downgrades later, its new CEO is raising capital to chase the fresh phase of the artificial intelligence boom.
There’s more than a whiff of desperation about the $60 million equity raising announced by fallen ASX tech star Appen Group.
After about 10 profit downgrades in the past few years – the latest of which arrived on May 10 – the capital raising is designed to give vital breathing space to Appen’s new chief executive, Armughan Ahmad, so he can hitch a ride on the hottest trend in global business: generative artificial intelligence.
Appen is a pioneer of the AI world, but now it needs to find a new way into the sector. David Rowe
The capital raising will be priced at $1.85 per share, an almost 20 per cent discount to Appen’s last closing price and light years away from the $40.08 peak during the heady days of the pandemic equity market boom.
Back then, Appen was part of the little gang of local tech companies known as the WAAAX stocks, alongside WiseTech, Altium, Afterpay and Xero.
The WAAAX gang was a pretty lame attempt to develop a local equivalent to the FAANG stocks that were driving the US sharemarket at the time. But to be fair, most of these companies have delivered strong growth over the past five years: WiseTech is up 415 per cent, Xero is up 140 per cent, Altium is up 65 per cent and Afterpay was acquired by US giant Block in a $38 billion deal.
But Appen has proven to be the undisputed dog of the WAAAX pack. Under former chief executive Mark Brayan, Appen horribly underestimated how sticky its revenue from big tech clients really was and, as underlying EBITDA fell from $101 million in 2020 to just $13.6 million in 2022, the trust of investors was lost.
Ironically, Appen does have a legitimate claim to the title of one of Australia’s AI pioneers. Its business was built on using an outsourced pool of workers to crunch data for the original AI models, including labelling data and testing its relevance.
But the never-ending profit downgrades have meant the company has been completely left behind by the generative AI revolution that started in late 2022 with the launch of ChatGPT.
But Ahmad, who was appointed four months ago, believes the group has turned the corner.
Not only has it slashed costs – including 300 of its 1500-person workforce – but the big clients who are driving the AI revolution are starting to tap Appen’s expertise to improve the large language models (LLMs) that underpin their generative AI technology.
Ahmad name-checks Microsoft, Apple, Meta, Google and Amazon, which he says account for about 80 per cent of Appen’s revenue, as firms that are starting to realise the role Appen can play.
Essentially, Appen believes it can be a sort of clean-up crew for AI developers and adopters. Human feedback is required to ensure that an AI model is providing relevant results without typical problems such as bias, the delivery of toxic content and what are called “hallucinations” – basically false statements presented as accurate ones.
Problems to solve
Appen’s pool of outsourced workers – what it refers to as its crowd – are now starting to be used by LLM model developers to test the relevance of its technology.
Additionally, Ahmad says companies that are deploying AI systems from the developers such as OpenAI or Nvidia will find that systems don’t necessarily work in a call centre or a back office without the fine-tuning only a human can provide.
“In generative AI, in order to do the fine-tuning, you need a human in the loop,” Ahmad says. “We are seeing the demand move very fast.”
The market, Appen says, can grow from just $US8 billion ($12.4 billion) in 2021 to $US111 billion in 2030.
Ahmad certainly told a good story on Tuesday. He shared some of his background growing up in difficult circumstances in Pakistan, and pointed out that his incentives are completely tied to getting the Appen share price back up – the first tranche will only kick in when the stock hits $7.63 – and all but promised Appen will be cash positive at an EBITDA level by the end of the year.
But he also pointed out some embarrassing problems he still needs to solve. Appen’s sales staff, he says, traditionally waited for potential customers to contact them, rather than chasing new business. He bluntly admits he is still probably about six months away from providing the sort of visibility the market wants over revenue.
Appen is clearly very reliant on a concentrated group of customers, but exactly how important Appen is to those big tech names Ahmad drops isn’t really clear. As Ahmad says, he hadn’t even heard of Appen before he was approached for the job; that raises questions over the idea that investors have been sold over the last five years, that Appen is a key player in the tech development programs of these giants.
The capital raise, which has been underwritten by Barrenjoey, will at least keep the banks away for a while; Appen says lender Westpac has agreed to waive financial covenants for the June testing of its undrawn credit facility, conditional on completion of the raise.
How much more patience investors are prepared to show the company remains to be seen.
“We need to see evidence of a definitive turnaround in key metrics for a business which to date has had limited earnings visibility,” RBC analyst Garry Sherriff says.
--- ends ---
Yeah, Nah!