The Appen Ltd (ASX: APX) share price certainly has been out of form in 2021.
Since the start of the year, the artificial intelligence data services company’s shares are down 50%.
This compares to a 12% gain by the S&P/ASX 200 Index (ASX: XJO) over the same period.
Why is the Appen share price under pressure on 2021?
Investors have been selling down the Appen share price this year due to the impact that COVID-19 was having on demand for its services.
In May Appen’s CEO, Mark Brayan, commented: “COVID interrupted many businesses last year and that in turn reduced their digital ad spend for a period. This impacted our major customers’ sources of revenue, and although digital ad spend has bounced back nicely, that experience is driving them to invest in new AI products that are less reliant on advertising.”
Also weighing on the Appen share price were comments about data privacy and anti-trust concerns that were impacting developments.
Mr Brayan said: “Our customers are developing new AI products in response to COVID’s impact on online advertising last year and regulatory pressures such as anti-trust and data privacy. This dictates the data they need for product development and impacts their engineering resource allocations and the volumes and types of data they need from us.”
“As stated before, machine learning is an iterative process, and our customers are switching resources between development projects as they pursue new break-out products. This in turn has impacted a handful of our larger programs,” he added.
Is this a buying opportunity?
One leading broker that believes the weakness in the Appen share price could be a buying opportunity is Citi.
A note from this month reveals that its analysts have retained their buy rating and $18.80 price target on the company’s shares.
This is despite the broker suspecting that a slower recovery in demand could lead to Appen falling short of the market’s first half EBITDA estimates this month due to lower margins.
Citi is expecting EBITDA of US$27 million for the half, which is ~20% lower than consensus estimates.
Based on the current Appen share price of $12.71, Citi’s price target implies potential upside of 48% over the next 12 months.
Citi is more positive on its longer term prospects. It believes Appen is well placed to benefit from the higher spending on artificial intelligence in the future. It also expects the company to leverage its increased capabilities and expand its addressable market.