The Appen Ltd (ASX: APX) share price is back to where it was a year ago at the bottom of the COVID-19 crash in March 2020.
A year ago, Appen shares were at $17.50 and at the time of writing it’s at around $18.60. Recently it was actually lower than $16. If you just looked at those two prices you’d think that Appen just hadn’t recovered from the effects of COVID-19 impacts yet.
But that’s not the full picture at all. Near the end of August 2020 it had gone all the way up to $43.50. But two results later and it has sank all the way to today’s price.
The FY20 result in particular a few weeks ago didn’t seem to excite investors much. Revenue went up 12% to $600 million, underlying EBITDA (EBITDA explained) went up 8% to $108.6 million and underlying net profit after tax (NPAT) fell 1% to $64.4 million. Statutory net profit grew 21% to $50.5 million.
What happened?
Appen reported growth in some areas of the business, such as Chinese revenue going up 60% “each quarter”, winning market share and providing a base for future growth. Some of Appen’s customers there include the largest technology companies, as well as autonomous vehicle, health and education technology providers.
‘Relevance’ saw revenue growth of 15% to $538.2 million. Appen explained that relevance is a unique use case that requires a large-scale, diverse crowd providing human judgements. These capabilities are highly specialised according to Appen and there hasn’t been a change in the competitive landscape. Appen said that relevance is less amenable to automation and will continue to be the “bedrock” of Appen’s business.
However, speech and image revenue fell 10% to $61.2 million. Management explained that the cyclicality of major programs and challenges in 2020 led to the decline.
What difficulties were there in 2020?
Appen said that the company’s business to business selling was impacted by the shift to working at home, resulting in fewer customer wins in the second and third quarters of 2020, before bouncing back in the fourth quarter of 2020.
The pandemic also reduced online advertising in the middle of last year, impacting Appen’s major customers and resulting in less spending on advertising-related AI programs as resources were re-prioritised to new products and some projects were deferred.
Does 2021 look better?
Appen revealed that its year to date revenue plus orders in hand for delivery in FY21 was approximately $240 million a month ago.
In FY21, underlying EBITDA is expected to be between $120 million to $130 million – this would be growth of 18% to 28%.
A few weeks ago, Macquarie Group Ltd (ASX: MQG) said in a note that Appen was facing some difficulties, with more competitors and price competition. They think there could be even more disappointment in the future for Appen shareholders.
On Macquarie’s forecast, the Appen share price is valued at 31 times the estimated earnings for the 2021 financial year.
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