The Appen Ltd (ASX: APX) share price has come under significant selling pressure on Wednesday.
In morning trade, the artificial intelligence data services company's shares are down 22% to $2.50.
This means the Appen share price is now down over 60% since this time last year, as you can see on the chart below.
Why is the Appen share price crashing?
Investors have been hitting the sell button today after the company revealed that its performance has continued to deteriorate.
In February, management advised that it expected a soft start to FY 2023 and for that to lead to underlying EBITDA being materially lower than the prior corresponding period.
Clearly, expectations were already low. But even these low expectations appear to have been wide of the mark, which explains the weakness in the Appen share price today.
According to the release, challenging external operating and macroeconomic conditions have led to a sharp drop in revenue and earnings for the first four months of FY 2023. Appen has reported:
- Revenue down 21.4% to US$95.7 million
- Gross profit down 24.7% to US$35.8 million
- Constant currency underlying EBITDA down to negative US$12.4 million from positive $7.9 million
What's next?
One positive is that management revealed that its focus on establishing a greater level of operational rigour is in progress with the previously identified ~US$10 million of cost savings to be implemented over the course of FY 2023.
In addition, a series of significant measures to achieve further annualised cost savings of approximately US$36 million have been identified and will be delivered over the course of FY 2023. The first full year impact of these measures is expected in FY 2024.
If all goes to plan, Appen expects to exit the current financial year with an annualised run-rate cash operating cost base of approximately $113 million. This is expected to lead to Appen "exiting FY23 with a return to underlying EBITDA and underlying cash EBITDA profitability on an annualised, run-rate basis."
Outlook
Although there clearly has not been any immediate positive impact to its performance from the emergence of ChatGPT and other generative AI tools, management continues to believe it has a major opportunity in this side of the industry and is very positive on the launch of its new Large Language Model (LLM) data products.
Nevertheless, it has warned that it expects "revenue to decline materially in FY23 compared to FY22." Though, with an "improvement in 2H FY23 revenue relative to revenue achieved in 1H FY23."
Appen's CEO, Armughan Ahmad, commented:
Appen has tremendous potential. These important initiatives announced today represent a refresh of the business. We are highly focused on the areas that are within our control and have taken the necessary steps to align our cost structure with current revenue expectations and now expect to exit 2023 as an underlying EBITDA and cash EBITDA positive business. With this stronger foundation, we look to the future to fully capitalise on the exciting growth opportunities enabled by generative AI.
