At the time of writing, Appen Ltd (ASX: APX) shares jumped up nearly 4% to $23.65.
Appen is a global leader in the development of high quality, human annotated datasets for machine learning and artificial intelligence. Its share price is up a whopping 86% this year, and this follows a 54% return for the share price in 2018.
Appen partners with leading technology, automotive and eCommerce companies, and governments worldwide to help them develop, enhance and use products that rely on natural languages and machine learning.
Why Is The Appen Share Price Up?
Appen has today announced the completion of the acquisition of Figure Eight Technologies, which was previously announced on 11 March 2019.
San Francisco based Figure Eight Technologies is a best-in-class machine learning software platform which uses highly automated annotation tools to transform unstructured text, image, audio and video data into customized high-quality artificial intelligence training data. Figure Eight has impressively grown revenue at a compound annual rate of more than 50% in the last 4 years.
Appen paid $US 175 million upfront and there is an earn-out of up to $US 125 million based on Figure Eight’s FY19 budget payable in March 2020. Appen undertook a $300 million capital raising to help fund the acquisition.
Is Appen A Buy?
This is a strategically significant deal for Appen, as it significantly broadens their customer base and adds SaaS recurring revenue to their business. One of my concerns with Appen previously was that it was essentially a services business that was being valued by the market on a SaaS multiple.
Other high growth stocks investors may consider include Wisetech Global Ltd (ASX: WTC) or Altium Limited (ASX: ALU).
The addition of Figure Eight provides a higher quality revenue, which should go a long way to justifying the current multiple. The addressable market is huge and there is no reason to think the AI market globally is going to slow.
I believe the acquisition to be a good fit for Appen, although it does look to be earnings dilutive in the first year so investors may need to wait to see the value come through in the profit statement on an EPS basis.
If you’re looking for what might be the next Appen, grab a copy of our free report below…
[ls_content_block id=”14947″ para=”paragraphs”]
At the time of writing David holds shares in Appen and Wisetech Global.
