https://www.livewiremarkets.com/wires/in-a-world-of-uncertainty-cash-flow-remains-king

Katie Hudson recently spoke about MP1, in comparison to APX. It is worth a read and she is bullish on MP1.

I agree with Katie's point around looking at the 'durability' of revenue and taking a long-term focus. 8.3x CY20 sales for Appen was an extreme price to pay back in August 2020 ($40 per share for a market cap of $5b AUD).

However, to play devil's advocate, Appen is now trading on ~2.6x CY20 revenue versus Megaport on ~30x FY21 ARR. I think this is more than taking into account the limited visibility into Appen's future revenue (and other challenges) versus Megaport's (admittedly) extremely sticky recurring revenue.

There are many concerns over the long-term viability of the data annotation industry (self-supervised learning etc.), yet the medium-term future of the industry is looking extremely promising. As a market leader, the opportunity (and risk) is for Appen to continue to reinvent itself and remain relevant in the AI space which has a spectacular decade's long runway of growth ahead of it.

I think it is also important to take stock of how Appen is evolving as a business. At the end of CY20, 31% of Appen's revenue was 'committed' (Figure 8 platform) up from just 7% at the end of CY2019. Appen is gradually evolving into a product-led, stronger technology business with stickier revenue. Data labeling for ML models is inherently sticky regardless due to the need for data refresh.

At these prices, we might easily see a surprise to the upside for Appen where expectations are so low, and a surprise to the downside for Megaport, where expectations are so high. The world is changing at a rapid pace and paying 30x FY21 ARR for Megaport is a bet that growth will remain uninterrupted over many, many years despite an uncertain world, competition and a myriad of other factors.

If growth at MP1 continues at 50% CAGR uninterrupted, it will take ~4 years before the ARR multiple drops from 30x to 6x. So today's price for Megaport is equivalent to 6x FY2025 ARR, assuming growth of 50% CAGR is guaranteed.

It is a wonderful business with a durable moat, so there is a good chance the MP1 will cruise through the next decade with uninterrupted growth. But, I don't like guarantees. "There is no such uncertainty as a sure thing" -- Robert Burns