The Appen Ltd (ASX: APX) share price may be trading lower on Friday, but it remains one of the best performers on the S&P/ASX 200 Index (ASX: XJO) in 2020.
Since the start of the year the artificial intelligence company's shares have gained almost 60%.
This compares to a 10% decline by the benchmark ASX 200.
Why is the Appen share price up 60% in 2020?
Investors have been fighting to get hold of Appen's shares this year after it continued its meteoric growth despite the pandemic.
In February Appen released its full year results and not only revealed stellar earnings growth for FY 2019 but forecast more of the same for FY 2020.
For the 12 months ended December 31, Appen posted revenue of $536 million and underlying EBITDA of $101 million. This was a 47% and 42% increase, respectively, on FY 2018's result. Positively, the latter was also ahead of management's upgraded guidance for EBITDA in the range of $96 million to $99 million.
The key driver of this was its Relevance segment. Once again it was the star of the show for Appen with a 37% increase in revenue to $430 million. This means it now accounts for 80% of its total revenue. And thanks to margin expansion, Relevance EBITDA increased 66% year on year.
Looking ahead, management revealed that it is forecasting underlying EBITDA in the range of $125 million to $130 million in FY 2020. This represents year on year growth of 24% to 29%. Pleasingly, this has since been reiterated twice over the last few months despite the pandemic.
What about the future?
The good news is that Appen still has a very long runway for growth, which is why I think it would be a fantastic buy and hold option despite its strong gains in 2020.
A company presentation from last year advised that the AI market is expected to grow to be worth between US$169 billion and US$191 billion per annum by 2025.
This is great news for Appen because an estimated 10% of spending in this market goes towards the data labelling it specialises in. That means Appen's addressable market could be worth US$17 billion to US$19 billion in five years. Which, as you can see above, is many times greater than the revenue it is currently generating.
Given the quality of its services and its strong relationships with major tech companies, I believe it is in a great position to capture a growing slice of this market. In light of this, I feel confident Appen shares will be market beaters over the 2020s.
