The Appen Ltd (ASX: APX) share price is down around 20% after the ASX tech share revealed a tough trading update to April 2023.
Appen says it’s a global market leader in data for the AI lifecycle. That involves data sourcing, data annotation and model evaluation by humans. It says it enables organisations to launch innovative AI systems.
Weak FY23 Appen update
Appen has previously said that it was expecting a “soft” start to FY23, with an expectation that the FY23 first half underlying EBITDA (EBITDA explained) would be “materially lower” than the FY22 first half.
It said that challenging external operating and macroeconomic conditions have continued into FY23.
Year to date revenue to April saw revenue generation of $95.7 million, down 21.4%. Gross profit to April was down 24.7% to $35.8 million.
Underlying EBITDA, excluding foreign exchange effects, to April 2023 was a loss of $12.4 million, down from $7.9 million last year in the same time period. Profit can have a key impact on market thoughts regarding the Appen share price.
But, the company did note that it was expanding into generative AI, like OpenAI’s ChatGPT.
Further cost savings
Appen said it was announcing a “series of significant measures to achieve further annualised cost savings”, on top of those announced in February. The measures, which will be delivered over the course of FY23, are “expected to deliver further annualised cost savings of approximately $36 million.”
The first full year impact of these measures is expected to be achieved in FY24.
Appen said it expects to exit FY23 with an ‘annualised’ run-rate cash operating cost base of approximately $113 million.
The ASX tech share said these cost-saving initiatives are expected to have minimal impact on Appen’s ability to generate revenue.
Appen said that the one-off costs associated with implemented these cost reductions are expected to between $4 million and $5 million.
Outlook for the Appen share price
Appen said it’s expecting revenue to fall materially in FY23 compared to FY22. But, the FY23 second half revenue is expected to improve compared to the first half of FY23.
But, the company is expecting that by the end of FY23, it will have returned to positive underlying EBITDA profitability on an annualised basis.
The Appen share price has gone through a disastrous decline since August 2020. I don’t know if it will ever be able to recover, but a return to profitability at the EBITDA level would be a start.
I’d prefer to buy many other ASX growth shares over Appen.
