The Appen Ltd (ASX: APX) share price has returned from its trading halt and is crashing deep into the red again.
At the time of writing, the struggling artificial intelligence (AI) data service provider's shares are down 17% to $1.91.
This means the Appen share price is now down 71% since this time last year.
Why is the Appen share price crashing again?
Investors have been selling down the Appen share price today after the company announced the completion of the institutional component of its fully underwritten ~$60 million equity raising. This comprises a $38 million 1 for 6 pro rata accelerated non-renounceable entitlement offer and a ~$21 million institutional placement.
According to the release, the company raised $21.2 million through the institutional placement and $8.8 million via the institutional entitlement offer. These funds were raised at $1.85 per new share, which represents a sizeable 19.6% discount to its last close price. It is also a 42% discount to where the Appen share price was trading just a little over a week ago, prior to the release of its disastrous trading update.
Appen's CEO, Armughan Ahmad, was pleased with the news. He said:
Appen is delighted with the successful outcome of the Institutional Component of the Equity Raising and the support received from both existing and new institutional shareholders. We look forward to executing on the vision we have communicated to the market and delivering results for our shareholders.
The company will now seek to raise the balance via a retail entitlement offer at the same price.
Why is Appen raising funds?
The release explains that the proceeds of the equity raising will be used to fund one-off costs associated with its previously announced cost reduction program, provide balance sheet flexibility, and general working capital to support Appen's return to profitability.
Management appears to believe the latter will be supported by the emergence of generative AI, which is the type of AI used by ChatGPT.
It notes that the generative AI market is estimated to grow from $8 billion in 2021 to more than $110 billion by 2030. And as high performing generative AI models rely heavily on human feedback, Appen believes it is well positioned to participate and gain share in the generative AI services market thanks to the launch of a new set of Large Language Model (LLM) fine tuning and assurance products.
Though, it is worth remembering that Appen is not alone in this market and there's no guarantee that its products will be in demand by end users. And judging by the recent performance of the Appen share price, the market has yet to be convinced.
