The Appen Ltd (ASX: APX) share price has fallen a long way over the last six months. It has dropped just over 50% during that time period. Do brokers believe that the business is currently worth looking at or not?
As a reminder, it’s a business that’s involved in the development of high-quality, human annotated datasets for machine learning and artificial intelligence.
February 2021 saw a sizeable part of the decline of the Appen share price.
What happened with Appen during reporting season?
In February 2021, Appen revealed its FY20 result to investors. It said that revenue was up 12% for the year to $600 million. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew 8% to $108.6 million, with statutory EBITDA going up 23%.
The company said that its growing customer base included 136 new customer wins in 2020. There was also a 34% increase in the number of projects with its top five customers.
The committed revenue increased to 31% of the FY20’s second half total, up from 12% in the first half of FY20. Appen also said that Chinese revenue was growing at 60% quarter on quarter.
At the time of the release of the FY20 result, it had provided guidance for the full FY21 for underlying EBITDA to be in a range of $120 million to $130 million. That represented growth of between 18% to 28%.
Any other updates?
A few weeks ago, Appen updated the market to say that it has been restructured to align its product-led growth strategy with four customer-facing business units – global, enterprise, China and government.
Global will focus on providing data annotation services and products to its major US tech customers. Enterprise will drive growth outside of its global customers by leveraging its product suite to serve new customers and AI use cases. The China and government units will continue to focus on capturing market share in their high-growth markets.
Appen believes that the new leadership structure, together with profit and loss responsibility, will increase visibility of, and accountability for, performance.
The company revealed a trading update along with this restructuring news. It said that its year to date revenue plus orders in hand for delivery in FY21 was approximately US$260 million at the end of April 2021.
Appen also disclosed near the start of May that COVID-19 was impacting some of its customers including online advertising and regulatory pressures such as anti-trust and data privacy. Some customers are switching resources between development projects as they pursue new ‘break-out products’, impacting a few larger programs. It also noted that competitors are “maturing” and that Appen has to maintain its flow of new product features and that it needs to fight harder to stay ahead.
Broker thoughts on the Appen share price
Ord Minnett rates Appen shares as a buy, with a price target of $24.75. That suggests a potential upside of over 90% over the next 12 months if that projection were to come true. The broker thought the May trading update was reassuring, particularly with the consistent underlying EBITDA expectations.
Brokers at Macquarie Group Ltd (ASX: MQG) have been negative on Appen for some time, but it’s currently rated as a hold here, with a price target of $14.70 – over 10% higher than today’s Appen share price.
Using Macquarie’s numbers, Appen is valued at 30x FY21’s estimated earnings.