Appen share price crashes on US$239m FY22 loss

It was a difficult 12 months in 2022 for this former market darling…

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Key points

  • Appen shares are being hammered on Monday morning
  • A very poor performance in FY 2022 has shocked investors
  • New product launches have failed to offset this and support its shares

The Appen Ltd (ASX: APX) share price is having a nightmare start to the week.

At the time of writing, the embattled artificial intelligence (AI) data services company's shares are down 13% to $2.40.

This follows the release of the company's full-year results this morning.

Appen share price crashes on huge loss

  • Group revenue down 13.8% to US$388.5 million
  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) down 85.8% to US$11 million
  • Underlying net loss after tax of US$22.8 million
  • Non-cash impairment of US$204.3 million
  • Statutory loss after tax of US$239.1 million
  • No dividend
  • Cash balance of US$23.4 million and no debt

What happened in FY 2022?

For the 12 months ended 31 December, Appen reported a 13.8% decline in revenue to US$388.5 million. This was driven by a 13% decline in Global Services revenue to US$299.8 million and a 13.8% reduction on New Markets revenue to US$88.4 million.

Management advised that this reflects challenging external operating and macro conditions that resulted in weaker digital advertising revenue. This led to a reduction in spending by some of Appen's customers, primarily on core global programs.

Things were much worse for the company's earnings, with its underlying EBITDA falling 85.8% to US$11 million. This was due to a combination of lower revenue, lower gross margins, increased costs, and foreign exchange losses. Excluding the latter, Appen's underlying EBITDA was down 82.8% to US$13.6 million.

On the bottom line, Appen reported an underlying loss after tax of US$22.8 million. This was down by US$63.4 million from a profit after tax of US$40.6 million in FY 2021.

Appen also made a US$204.3 million non-cash impairment of goodwill and intangibles, which brought its statutory loss after tax to a whopping US$239.1 million.

Unsurprisingly, given its abject performance, the company has elected to scrap its final dividend.

Management commentary

Appen's new CEO, Armughan Ahmad, acknowledged that the company's performance in FY 2022 was "far from satisfactory." He commented:

During my first two of months at Appen I've had the opportunity to meet our people and experience their deep sense of pride for their work. I believe that Al is the enabler, and our people are the transformers.

I'm excited about the potential for Appen and our ability to create a positive impact, however our FY22 financial performance is far from satisfactory. We have a lot of work ahead of us. My top priority is to establish greater operational rigour to accelerate innovation, drive sales and deliver profitable growth.

Outlook

Unfortunately, Appen revealed that it has experienced a "soft" start to FY 2023 despite all the current hype around AI.

One positive, though, is that management has identified $10 million of annualised cost savings. The benefits of these saving are expected to be seen from the second half of FY 2023 and in FY 2024.

It has also revealed three new product launches to build trustworthy generative AI applications, seemingly in response to the emergence of ChatGPT. These are:

  • Reinforcement Learning with Human Feedback tackles the risks of bias and hallucinations in large language models.
  • Document Intelligence enables clients to extract key insights from their unstructured documents.
  • Automated LP Labelling leverages generative Al capabilities and zero/few shots learning techniques to speed up data annotation.

In respect to Reinforcement Learning with Human Feedback, Appen highlights that the rise of ChatGPT has brought attention to the potential of generative Al to revolutionise how humans and machines interact. However, it feels that one of the challenges of generative Al is producing accurate and ethically aligned results.

Appen's Reinforcement Learning with Human Feedback product enables clients to generate prompt-response pairs that are engineered by Al Training Specialists and reviewed for accuracy and bias by a diverse group of Al Training Specialists.

Time will tell if Appen is too late to the party for this one, but Mr Ahmad appears optimistic. He commented:

We are excited by this next phase for Appen. We will continue to create products and services that serve the data needs of our clients. Our generative Al products we announced today are a great example, and we are just getting started. We are also developing industry vertical Al solutions and expanding our partnerships with system integrators, software vendors, and hyperscalers to deliver high-impact solutions for our clients.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Appen. 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 Scott Phillips.

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