Appen [ASX:APX] Plummets 25% As 1H 22 EBITDA Declines 69%

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Artificial intelligence data services stock Appen [ASX:APX] sank on Tuesday after reporting disappointing H1 FY22 trading results.

Appen’s H1 FY22 revenue fell 7% while underlying EBITDA cratered 69%.

As a result, APX ending the half with a statutory net loss after tax of $9.4 million following a statutory net profit after tax of $6.7 million in 1H FY21.

Appen flagged that it expected materially lower 1H FY22 EBITDA in May, but today’s actual figures have surprised the market, nonetheless.

APX shares were down more than 25% on Tuesday. Over the past 12 months, APX shares are down 65%.

ASX:APX stock chart  Appen

 

Source: www.tradingview.com

Appen’s weak half

This morning, Appen provided an update on its half-year results for the first half of 2022, the six-month period ending 30 June.

Investors were forewarned of the company’s figures for the first half, however, today the tech stock brought home some hard truths:

  • Group revenue of $182.9 million down 7%, primarily reflects a lower contribution from the Global Division due to weaker digital advertising demand and a resultant slowdown in spending by some of our large customers
  • New Markets revenue of $45.0 million down 6%, impacted mainly by lower Global Product. Excluding Global Product, New Market revenue was up 35%
  • Underlying EBITDA (after FX impact) of $8.5 million down 69%, due to lower revenue and investments in transformation, product, and technology, as well as an FX loss
  • Statutory net loss after tax of $9.4 million, compared to a $6.7 million statutory net profit after tax in 1H FY21, impacted by higher amortisation on product development
  • Underlying net loss after tax of $3.8 million, compared to a $12.5 million net profit after tax in 1H FY21
  • Cash balance of $42.2 million on 30 June 2022, with high cash flow conversion.’

Appen’s CEO, Mark Brayan, stated Appen’s first half was wrought with ‘challenging external operating and macro conditions’ impacting demand and slowing customer spending.Brayan further explained:

This has especially impacted our Global division, particularly those customers with a high exposure to digital advertising. While only 26% of our first half Global revenue supports digital advertising, we are seeing a flow on effect to non ad-related projects and some of our core programs, as our customers reduce their overall spend.

As stated in February, costs in this half are higher primarily due to transformation costs, and investment in product and technology resulting in higher employee expenses, recruitment, and IT costs. Together with lower-than-expected revenue, this has impacted earnings and margins.

Brayan did point out that despite COVID-lockdowns in China, Appen’s first half revenue was up 141% to $18.0 million:

We have established ourselves as a leading AI data company in China, and continue to service the leading tech giants, social media, mobile providers, and autonomous vehicle companies.’

Appen’s Enterprise business underperformed in the first half but picked up in the beginning of the second half with orders of $9.3 million in July and EBITDA increasing from 101% to 211%.

Appen said it will be reviewing its investments, business, and production margins in an attempt to improve its position.

Appen’s low earnings visibility

APX said its results usually skew favourably to the second half of the calendar year.

Thus, Appen anticipates higher results in the second half, driven by boosted seasonal and ongoing projects.

That said, Appen noted there was ‘no improvement in July trading’, making it uncertain about a ‘continued slowdown of spending from our Global customers’.  

All up, Appen was quite uncertain about its revenue visibility.

From AI to battery tech

The electric vehicle (EV) market is rapidly expanding, boosted further by government initiatives and funding programs supporting production across the globe.

But our energy expert, Selva Freigedo, thinks the global transition to EVs means the industry faces a supply crunch which can send prices for battery materials soaring even higher in 2022 and beyond.

If you’d like to know more, I suggest checking out Selva’s battery tech metals report for free here.

Regards,

Kiryll Prakapenka

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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