It has been a stunning start to the week for the Appen Ltd (ASX: APX) share price.
This morning the shares of the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence rocketed 20% higher to an all-time high of $22.50.
At present they are trading almost 19% higher at $22.33.
Why did the Appen share price rocket higher today?
This morning Appen released its highly anticipated full year results which smashed both the company's guidance and the market's expectations.
In FY 2018 the company delivered underlying EBITDA of $71.3 million, up a staggering 153% on the prior corresponding period.
Incredibly, this was also 10% higher than the top end of the upgraded guidance range it provided in mid-November when there were just six weeks left of its financial year.
Appen's Content Relevance division did the majority of the heavy lifting. On a statutory basis, the key segment delivered a 148% increase in revenue to $312.8 million. This was driven partly by the acquisition of the Leapforce business, but also by existing and new customer investments in artificial intelligence.
In addition to this, economies of scale contributed to margin expansion during the half, leading to segment EBITDA growing a whopping 238%. This ultimately led to Appen's overall underlying EBITDA margin improving to 19.6% from 16.9% in the prior corresponding period.
It also offset a subdued performance by Appen's Language Resources division. Although the segment posted a 27% increase in revenue to a record $51.4 million, segment EBITDA declined by a disappointing 8.2% to $11.2 million. Management blamed the margin decline on its mix of work.
What's next for Appen?
The good news for shareholders is that management is confident that its growth can continue in FY 2019 and beyond.
It has pointed to the booming AI market as a reason to be positive. This market is expected to be worth $191 billion by 2025, with 10% of it estimated by the McKinsey Global Institute to be related to labelled data that Appen is directly involved in.
In order to gain exposure to as much as this addressable market as possible, the company has advised that it is building out its team, customer base, and operations in the world's second biggest AI market, China.
In the short term management has provided underlying EBITDA guidance in the range $85 million to $90 million, which will be a year on year increase of between 19.2% and 26.2%.
Should you invest?
Whilst its shares are looking fairly valued now, I still feel that its long-term growth prospects make it a good buy and hold option along with fellow tech stars Afterpay Touch Group Ltd (ASX: APT) and Altium Limited (ASX: ALU).
