The Appen Ltd (ASX: APX) share price is currently down 15% after giving the market a FY22 trading update.
Appen is a business that provides data sourcing, data annotation and model evaluation by humans, enabling organisations to launch AI systems.
Woes continue for the Appen share price
The tech business previously told investors that it was expecting FY22 revenue to be skewed to the end of the financial year.
But, it was expecting a slowdown from its global customers, while also expecting margins to be lower because of smaller revenue, but it’s also investing in products, technology and transformation.
However, there has been “no improvement” in trading conditions in August and September.
New guidance
The business warned there are “significant challenges” in providing guidance, including uncertainty about global customer spending and the impact of economic conditions on new business.
It’s expecting revenue to be in the range of US$375 million to US$395 million. Management is still expecting the EBITDA (EBITDA explained) margin to be lower than FY21 and the most recent trading data “reinforces this position”.
What’s going wrong? Appen explained:
As noted at the half year, challenging external operating and macro conditions have resulted in weaker digital advertising revenue and a slowdown in spending by some of our major customers.
This has impacted our ad-related programs and had a flow on impact to non-ad related programs
and some core programs.The Global Division continues to win new projects and the project count is at an all-time high,
however the size and stage of these projects is insufficient to offset the reduction in revenue from
some of our higher margin core programs.Our non-global business continues to grow, and momentum in the Enterprise business is building with year-to-date bookings up 22% compared to this time last year. However, non-global revenues are typically at lower margins compared to our core programs.
Plans to help the situation (and Appen share price)
Appen said it’s focused on ‘high impact’ initiatives – accelerating productivity improvements, increasing the use of offshore facilities for project delivery, engineering, and business support, and right sizing investments to market opportunities.
It continues to invest in its new markets business to diversify revenue and products. It’s also looking to reduce costs.
Appen also pointed out that its balance sheet has no debt.
The business may well be able to turn things around, but it’s not the type of investment I’d want to make. I also wasn’t ever sure about how strong Appen’s competitive position was and much it relied on a few big customers.
There are other ASX growth shares I’d rather look at where profit growth seems more assured.
