Why is the Appen share price crashing 38% on Thursday?

Why is this former market darling sinking deep into the red today?

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The Appen Ltd (ASX: APX) share price is back from its trading halt and crashing deep into the red.

At the time of writing, the artificial intelligence data services company's shares are down 38% to 58.5 cents.

Why is the Appen share price crashing?

Investors have been hitting the sell button today after the company revealed that it needs more funds to support it in its quest to become profitable again. That's despite Appen raising $60 million from investors in June.

According to the release, the company has successfully completed a fully underwritten institutional placement and the institutional component of its entitlement offer.

The placement raised approximately $6 million at 55 cents per new share. This represents a whopping 42% discount to where the Appen share price last traded.

In addition, a further $6 million was raised through the institutional entitlement offer at the same price. Demand doesn't appear to have been strong for this one, with the company reporting a take up rate of approximately 60%.

It's hard to blame investors for not being overly keen. If they took part in the company's capital raising in June at $1.85 per share, they would be seriously underwater on their investment.

The company will now push ahead with its retail offer, which aims to bring the full amount raised to $30 million. The retail offer is at the same price as the institutional offer.

Trading update

Also putting pressure on the Appen share price was the release of another abject trading update.

Due to challenging external operating and macroeconomic conditions, its performance for the ten months ending 31 October 2023 is as follows:

  • Revenue down 29.3% to $223 million
  • Gross profit down 32.8% to $80.4 million
  • Underlying EBITDA loss of $23.8 million (from a profit of $9.9 million)
  • Underlying cash EBITDA loss of $32.8 million (from a loss of $4.8 million)

The Appen share price is now down 77% over the last 12 months.

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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