Yep @thunderhead That's what I've been saying for a while - see here: APX - Appen Limited - Strawman: ASX share price, valuation, research and discussion

And here: APX - Business Model Analysis (strawman.com)

And here: APX - Trading Update (strawman.com)

While the market reacted negatively, as you'd expect - to their poor results and even-worse-than-expected guidance that Appen delivered last month, as highlighted in the chart below (the share price drop highlighted in the orange oval)...

...That's just yet another sell-down in a massive downtrend that started back in 2020 - more than 3 years ago:

Zooming out to that 5 year chart gives us a better overall perspective of just how much shareholder value has been wiped out - to date - and of course there is more to come. They are losing money, they are losing sales, and they are most definitely ex-growth. Their business model is mostly now irrelevant so unless you believe they can pivot successfully into something else - which they've comprehensively failed to do over the past three years during which they must have know the obvious truth about their failed business model, then why would you touch them with a barge pole. Just steer clear. It's a slow-motion train wreck.

Chart data sourced from Commsec today, data directly above sourced from FNArena.com today, as indicated (today being Sunday 10th September, 2023).

Disclosure: No, I do not hold APX shares.

See also: https://strawman.com/forums/topic/7562#post-20821 ("Further Reading" - i.e. recent AFR coverage of Appen)

Further Reading:

APX, NXT, HLO, IDX: Appen, NextDC, Helloworld, Integral Diagnostics profit results: Chanticleer (afr.com) [Aug 28, 2023 – 4.30pm]

Plain text: https://www.afr.com/chanticleer/what-we-learnt-appen-nextdc-helloworld-integral-diagnostics-20230828-p5e01q

Chanticleer:

What we learnt: Appen, NextDC, Helloworld, Integral Diagnostics

Small cap results are flying around the market like confetti. Here are a few that caught our eyes for good and bad reasons on Monday.

On the big days of this month’s earnings season, The Australian Financial Review’s Chanticleer columnists James Thomson and Anthony Macdonald have extracted the gold from the key profit results.

JT: When a stock plunges like AI technology group Appen did on Monday following its first-half results – down a painful 29 per cent in a day – we’d usually call that a surprise. But that’s not the case when it comes to Appen, which has seen 14 peak-to-trough falls of more than 20 per cent over the past five years, and five in the last 12 months alone.

It’s been a while since we got much good news out of Appen.  David Rowe

The problem on Monday was guidance for the second half of the calendar year. While the market knew the six months to June 30 was going to be tough – revenue fell 24 per cent and the company’s net loss widened from $4 million to $34 million – consensus had been for revenue to rise by 16 per cent in the second half. But Appen now expects the second half will be in line with that tough first half.

There is deep irony that many of the AI models the world is getting excited about are trained on Appen’s data. But converting this new wave of AI interest to growth is proving difficult.

AM: Data centre developer and owner NextDC’s numbers for last year were in line with expectations, which you would expect given the group went to shareholders for a $618 million equity top-up before the financial year-end. What spooked investors was the guidance, which was in line with the consensus forecast at the revenue line but 7 per cent lower when it came to EBITDA.

The difference was its cost base, which NextDC called a “step change” as the company grew. The highest number of the lot, though, was the capital expenditure guidance at $850 million to $900 million, which is about twice the forecast revenue.

NextDC chief executive Craig Scroggie.  James Brickwood

This company has big growth plans with plenty of data centre expansions or developments on the go. It’s a good reminder that equities investors will support a big capex program as long as they believe in the long-term story and sense the future profits; perhaps AGL Energy’s transition will be OK after all.

NextDC shares are trading at nearly 40 times forecast EBITDA, despite a 3 per cent fall on the 2023 result.

JT: Travel agent group Helloworld has turned in the sort of 2023 result you’d expect if you’ve spent any time on social media in the last year, checking out your family and friends’ holiday snaps. Total revenue surged 140 per cent, last year’s loss of $29 million turned into a profit of $19.2 million, and EBITDA of $44 million was bang in line with consensus.

What’s particularly interesting, though, is that there is no let-up in travel demand, despite sky-high prices and broader cost of living pressures. Helloworld delivered its first guidance for 2024 and is expecting EBITDA of between $64 million and $72 million, which at the midpoint points to growth of 52 per cent.

One notable titbit from the result was that inbound travel remains weaker than outbound, despite the plunging Australian dollar. Lucky the government blocked those Qatar flights then, isn’t it?

AM: There was a stack of other small cap results on Monday, and it was hard to know where else to look!

Radiology group Integral Diagnostics (market cap $730 million) had an eye-catching line in its outlook statement, flagging it would “consider accretive acquisitions that represent a strong clinical, cultural and strategic fit”. While radiology is always ripe with deals, and Integral Diagnostics has been a willing participant during its eight years on the bourse, that was pretty strong language from the company’s management team.

It seems like 12 months is a long time at Integral Diagnostics, which this time last year told investors there were “no further acquisitions contemplated at this time”. The outlook contained five focus areas and no numbers. The focus areas were organic earnings growth, tele-radiology, ESG, culture and the potential M&A.

Fund managers said it was a solid result. Revenue rose 22 per cent, while operating EBITDA was up 13.9 per cent, thanks to a much stronger second half of the financial year. It is worth watching the group’s balance sheet, though: net debt nearly doubled to $194.5 million, or 2.9 times EBITDA.

Read more about Monday’s results

• NextDC plans nearly $1b spend on data centres as AI wave looms The Brisbane-based company told shareholders it had signed the largest amount of new contracts in its history during the past financial year.
• Helloworld shares surge as transaction volumes more than double Net profit after tax from continuing operations was $19.2 million in the last financial year, compared with a $28.8 million loss in the prior year.
• Maggie Beer banks on new products to arrest sliding sales The CEO of the gourmet foods group says an expanded range of ice-cream should help, although shoppers are more cautious.
• Fortescue mining boss Fiona Hick walks Fiona Hick’s shock resignation after six months comes as the metals and energy company reveals a drop in both net profit and dividend.
• Dalrymple Bay Infrastructure boss steps down as profit jumps CEO Anthony Timbrell will leave two-and-a-half years after the coal export terminal floated, as higher handling fees helped lift interim net profits five-fold.
• Liberty shares steady as dividend beats expectations Liberty’s net-interest margins fell 0.3 percentage points to 2.76 per cent, but Mr Boyle said this was still ahead of his peers.
• Chanticleer | The worst thing about this profit season is the forecasts While we will remember the record profits at CBA and Qantas, the big story of earnings season is a softening economy and lower than expected profits this year.

Unpack the most important stories in business, markets and politics with Australia’s two most influential columnists. Sign up to the Chanticleer newsletter.

James Thomson is senior Chanticleer columnist based in Melbourne. He was the Companies editor and editor of BRW Magazine. Connect with James on Twitter. Email James at j.thomson@afr.com

Anthony Macdonald is a Chanticleer columnist. He is a former Street Talk co-editor and has 10 years' experience as a business journalist and worked at PwC, auditing and advising financial services companies. Connect with Anthony on Twitter. Email Anthony at a.macdonald@afr.com

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APX ASX: Armughan Ahmad’s Appen plunges 30pc as losses widen (afr.com) [Aug 28, 2023 – 5.11pm]

Plain Text: https://www.afr.com/technology/appen-plunges-30pc-as-losses-widen-20230825-p5dziw

by Tess Bennett, Technology reporter (AFR).

Appen plunges as losses widen amid AI gamble

Shares in troubled technology business Appen collapsed 32 per cent on Monday, after the company’s gamble on new generative artificial intelligence products failed to offset the pain in its core business of supplying Silicon Valley’s mega caps with processed data.

Appen is down 58 per cent over the past 12 months following a series of profit downgrades, after work from its largest customers dried up.

Chief executive Armughan Ahmad says Appen will return to underlying profitability by December 31.  Louise Kennerley

Revenue for the six months ended June 30 was below analysts’ forecasts, dropping 24 per cent to $US139 million ($216 million) and Appen’s statutory net loss widened to $US43.3 million from $US9.4 million.

Underlying EBITDA swung to a $US15.7 million loss, compared with earnings of $US9.6 million for the first half of 2022, on account of lower revenue and a higher cost base.

At its peak in August 2020, Appen was fetching more than $40 a share and had a market capitalisation near $5 billion. On Monday, the stock closed at $1.52, down 34 per cent this year.

Appen chief executive Armughan Ahmad stepped into the role at the beginning of the year with a turnaround plan that included a $60 million capital raising, $US46 million cost-cutting program, and an overhaul of its sales team.

“The benefits of the turnaround are yet to materialise,” Mr Ahmad told The Australian Financial Review.

The company, which provides cleaned-up data sets for artificial intelligence businesses to train their models on, has largely relied on revenue from just five large global customers: Microsoft, Apple, Meta, Google and Amazon.

Lately, the company has attempted to recast itself for the ChatGPT era, pitching its services to Fortune 500 businesses and shifting its focus to develop new products that would cater for the need for humans to review the accuracy of large language models.

“We’re seeing these early green shoots in generative AI but our global services revenue is the majority of our revenue today, which has been challenged because of the macroeconomic environments and the reduced tech spending from our top customers.”

Appen’s global services revenue fell 27 per cent to $US100 million as its customers cut back spending and evaluated their AI strategies in response to external headwinds.

The company said it would not pay a dividend. As of June 30, Appen had a cash balance of $US55.2 million and no debt.

Early days for gen AI

Mr Ahmad said Appen had landed 42 large language model deals with 40 more in the pipeline, and signed its first million-dollar deal through its collaboration with Nvidia since launching its generative AI product.

However, the generative AI projects tended to be much smaller pilots or trials which were yet to generate revenue to offset the decline in income from its deep-learning projects.

Wilsons analyst Ross Barrows said Appen’s core deep-learning product will continue to make up most of its revenue and growth over the short term as the commercialisation of Appen’s generative AI opportunity is still “very early days”.

“The gen AI opportunity needs to be balanced against its current business that is seeing more volatile spending patterns from its largest customers, has (and always has had) limited revenue visibility and arguably increasing competition,” Mr Barrows said.

“So, while we are excited and constructive about the gen AI opportunity, we need to see stabilisation then growth in the core business before turning more positive on Appen.”

Appen reported it had achieved 63 per of its $US46 million cost reduction target and Mr Ahmad reiterated the company’s goal to be underlying EBITDA and cash EBITDA positive by December 30.

“To help achieve this, we are exploring further actions to prioritise our investments into a more focused set of higher potential areas and expect to exit the year with a further reduced cost base,” he said.

The company warned that it continued to face headwinds and “ongoing uncertainty across all customers” meant revenue for the second half would be “closer to 1H FY23 revenue”, which implied full-year revenue of $US278 million.

Historically, the company’s revenue base is concentrated among its core customers, which has left Appen vulnerable to any reduction in their budgets.

For example, 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.

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Tess Bennett is a technology reporter with The Australian Financial Review, based in the Brisbane newsroom. She was previously the work & careers reporter. Connect with Tess on Twitter. Email Tess at tess.bennett@afr.com