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Appen share price surges higher on FY 2020 update

Appen shares
Source: Appen

The Appen Ltd (ASX: APX) share price is surging higher this morning after the release of a business update.

At the time of writing the artificial intelligence company’s shares are up 5% to $25.40.

What was in Appen’s update?

This morning Appen released an update on the its operations, performance, and measures taken in response to the COVID-19 pandemic.

In respect to the latter, the company advised that all staff are working safely and productively from home, with the exception of skeleton crews in its secure facilities and staff in China who have returned to their offices.

Pleasingly, Appen’s work culture and infrastructure enabled a seamless shift to at-home work. As a result, customer delivery and support have not been impacted by the pandemic.

Another positive is that the company is regularly reviewing its performance and concludes that it is on target to achieve its guidance for FY 2020. This will mean full year underlying EBITDA in the range $125 million to $130 million. This represents a 23.8% to 28.7% increase on FY 2019’s underlying EBITDA of $101 million.

In addition to this, the company has provided the market with scenarios that could impact its guidance both positively and negatively.

Upside risks to guidance.

The company advised that factors that support and may increase its FY 2020 performance include:

  • A pandemic-led increase in the use of search, social media and ecommerce platforms.
  • An increase in available crowd workers.
  • Growth in current and new projects.
  • The weaker Australian dollar.

Downside risks to guidance.

Considerations that may dampen its FY 2020 performance include:

  • A slowdown in digital ad spending.
  • A reduction in IT/digital spending.
  • Reduction or cancellation of services from Appen’s smallest customers.
  • Interruptions to global hardware supply chains.
  • And the suspension of face-to-face projects such as audio data collection.

Finally, management notes that its balance sheet is very strong. It has cash resources in excess of $100 million.

It believes this not only means it is well positioned to weather the pandemic, but also can respond to opportunities as and when they may arise.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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