At time of writing, the share price of Appen Limited [ASX:APX] has fallen 8.17%, trading at $22.38.
The share price of Appen has taken off in the last three months, as you can see below:
The latest news out of Appen is that it has successfully completed its $285 million institutional placement at an offer price of $21.50 to facilitate the acquisition of Figure Eight Technologies Inc.
Appen share price slides on announcement
Having come out of a previous trading halt, shares in the company slid today. The announcement of the successful institutional placement was followed up by the company underlining that its share purchase plan for existing shareholders will go ahead as planned.
‘The SPP will provide each eligible shareholder with the opportunity to apply for up to $15,000 of new Appen shares at the lower of (i) the Placement Price (being $21.50), and (ii) the price that is a 2% discount to the VWAP of Appen shares on ASX over the 5 trading days up to, and including, the closing date of the SPP (rounded down to the nearest cent). The SPP will raise a maximum of A$15 million and applications that exceed that amount will be scaled back.’
This may seem like a paltry amount for those who are genuinely enthusiastic about what Appen is doing.
Appen’s last acquisition was Leapforce, back in November 2017 for $105 million.
The acquisition was a hit for the company, with the share price going on a solid run since.
This time around, the short-term versus long-term picture requires a bit more scrutiny.
Figure Eight holds promise, but has yet to turn a profit
Appen CEO, Mark Brayan hailed the upcoming acquisition:
‘The union of Appen and Figure Eight creates a unique, exciting and powerful opportunity for our customers. We now have the best of both worlds: Appen’s highly efficient crowd management platform and scalable, skilful multi-lingual crowd, combined with Figure Eight’s innovative customer-facing SaaS platform with ML-assisted annotation. Combined, we expect to meet and exceed our customers’ scale, speed and quality requirements.’
One of the highlights of the move is that Figure Eight’s product offering, ‘Combines machine learning and human-generated training data labels to provide annotation automation that is up to 50x faster than human-only solutions.’
One drawback is that with regards to EBIDTA, the addition of Figure Eight is not immediately accretive.
The company notes that it, ‘expects that Figure Eight will contribute positive EBITDA (excluding synergies) by the second half of 2020.’
So unlike the growth that came from the Leapforce, the Figure Eight growth may not show up for a while.
That being said, Appen still retains significant growth potential and its management have shown a canny eye for acquisitions in the past.
Given these circumstances, it might be unwise to hit the panic button just yet.
For Money Morning