Another Appen trading update, another downgrade … stock crashes 18%

Every Appen (ASX:APX) ASX trading update or results in the past couple of years has been negatively received by investors. Today was no exception judging by the 18% share price drop.

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Appen shares down over 90% in two years

Appen, which sources and sells machine learning data to train AI algorithms, traded over $40 per share in mid-2020, but is below $3 right now as update after update disappoints investors.

Historically, its client base was concentrated around a handful of big tech companies and predominantly for advertising purposes. The company has been diversifying its customer base into new clients and markets although investors fear these cash flows won’t be as reliable and as strong as before. This has been showing in its results and in repeated failure to meet its own guidance, let alone consensus estimates.

Appen (ASX:APX) share price chart (Graph: TradingView)

If the company doesn’t know where it’s going to go, how can investors?

Barely two months after its 1HY22 results in which it experienced an EBITDA decline of more than 65% and promised greater revenue in 2HY, the company reneged. It admitted ‘there has been no improvement in trading conditions in August and September’. 

It now guides to US$375-395m in revenues and US$13-$18m in EBITDA. The midpoint of these would represent declines of 14% and 81% respectively. Bad enough, but can you really trust these estimates anymore?

Appen’s ASX release tried to put some positive spins on its trading data. In particular, it noted increased sales in certain business units, but these were lower margin relative to those that saw a revenue decline.

The market has lost all confidence in Appen management

An ASX company like Appen can only break promises so many times before investors just switch off. We believe the situation got to this point some time ago and any confidence is completely out the door.

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