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Appen (ASX:APX) share price sinks 7% on full year results

asx share price falling lower represented by investor wearing paper bag on head with sad face
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Appen Ltd (ASX: APX) shares are sinking in early morning trade following the release of the company’s full-year results for the period ending 31 December 2020. At the time of writing, the Appen share price is down 6.77% to $18.88.

Let’s take a look and see how the artificial intelligence company performed for the period.

What’s impacting the Appen share price?

The Appen share price is being hit hard today despite the company delivering revenue of $599.9 million, up 12% on the prior corresponding period. Most of the earnings came from its ‘Relevance’ segment, which contributed $538.2 million – a lift of 15% over FY19. ‘Speech and Image’ followed with $61.2 million in earnings for the 2020 full year, down 10% from the comparative period. The fall was blamed upon cyclical timings and the COVID-19 pandemic.

The group saw its customer base expand over the period with the addition of 136 new clients. Many of the customers represented a variety of sectors such as payments tech, autonomous trucking, financial banking, and more. Appen noted that while many of these wins were small, they provide a foundation for growth in the coming years.

Notably, the company’s top five customers increased their number of projects by 34%, supporting new product development.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) lifted to $108.6 million, an increase of 8% on the same time the year prior. However, in other results impacting the Appen share price, the company reported that the underlying EBITDA margin stood at 18.1% for the period compared to 18.8% in FY19. Appen stated that the lower EBITDA margin was a result of $12.7 million invested in sales and marketing in China.

Underlying net profit after tax (NPAT) also eased to $64.4 million, down 1% on FY19’s result. This was mostly affected by growth investment (net of tax) and increased amortisation.

Appen closed the year with a strong balance sheet of $78 million in cash and no debt.

The board declared a 50% franked dividend of 5.5 cents per share to be paid on 19 March 2021.

Management commentary

Appen CEO Mark Brayan briefly touched on company’s result, saying:

2020 was a breakout year for new sales, new projects, committed revenue and our entry into China, but it was not without its challenges. I am extremely proud of our team’s efforts to support our customers and growth strategy, and deliver for our shareholders, in such a difficult year.

Outlook

Appen’s performance for the full year was hit hard by COVID-19 which led to fewer B2B sales and reduced online advertising spend. However, the company saw a bounce back in the fourth quarter. It believes that most of the projects that have been deferred will recommence this year.

The company’s year-to-date revenues including the orders on hand for delivery amount to $240 million in February so far.

As a result, underlying EBITA for the year ending FY21 is expected to be in the range of $120 million to $130 million. Based on a constant currency basis, this would reflect growth of around 18% to 28% on FY20’s underlying EBITDA (excluding currency gain) of $101.8 million.

Appen share price snapshot

Over the last 12 months, the Appen share price is down more than 20%. Appen shares hit a low of $15.70 last March, before accelerating up until August, reaching a high of $43.66. Since then, the company’s shares have tumbled back towards their COVID-19 lows. 

Based on the current Appen share price, the company has a market capitalisation of around $2.5 billion.

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Aaron Teboneras owns shares of Appen Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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