The Appen Ltd (ASX: APX) share price is under pressure on Wednesday.
In morning trade, the artificial intelligence (AI) data services company's shares are down 15% to 93 cents.
Why is the Appen share price crashing?
The catalyst for today's decline has been the release of the company's second quarter and half year update before the market open.
According to the release, Appen reported a 6% year on year decline in revenue to $51.9 million for the quarter. This was despite the company recording strong revenue growth in China.
Appen revealed that its China business continued to perform well during the quarter, delivering 77% revenue growth over the prior corresponding period. It also highlights that this business exited the quarter with an annualised run-rate exceeding $100 million. Additionally, it achieved standalone underlying EBITDA profitability in the second quarter.
Unfortunately, management notes that the strong growth of the China business was offset by the ongoing volatility and dynamic nature of the US AI market. This includes uncertainty in timing for large LLM projects to resume.
However, it believes that recent industry consolidation has reinforced high-quality data as foundational to the future of AI.
As a result, it remains focused on the continued execution against its near term strategy. This includes increased technical expertise in the go-to-market and delivery teams. The company believes it has made continued progress in each of these areas during the quarter.
In addition, its previously announced near-term strategy of capturing efficiencies through technology innovation and automation has identified approximately $10 million in incremental annualised cost efficiencies.
These savings are very much needed. Appen's underlying EBITDA was negative $0.6 million for the second quarter and negative $2.2 million for the first half.
This was despite the China business recording positive EBITDA of $2.1 million for the quarter and $2.9 million for the half.
Management commentary
Commenting on the quarter, Appen's CEO, Ryan Kolln, said:
Q2 was a strong quarter for our China business, exiting the quarter with an annualised revenue run-rate over $100 million – a pleasing result and milestone. In addition to the significant revenue growth, the China business achieved underlying EBITDA profitability for both Q1 and Q2.
The remainder of our business was impacted by short-term volatility due to the dynamic nature of the US AI market. Notwithstanding this, we remain confident the market opportunity remains strong, and the execution of our near-term strategy will be the enabler in capturing growth throughout the remainder of FY25 and into FY26. As the market continues to evolve, the companies best positioned to deliver trusted, scalable data will be those that shape the next generation of AI development. That's where Appen has a unique and powerful role to play.
Outlook
Management advised that its FY 2025 revenue is currently tracking towards the low end of its $235 million to $260 million guidance range.
The Appen share price is now down 63% over the past 6 months.
