Appen Ltd (ASX: APX) shares are getting hit hard on Thursday after the company released its latest quarterly update.
At the time of writing, the Appen share price is down 28.06% to $1.115.
That is a brutal drop in a single session, especially when you consider the stock is still up around 40% in 2026.
Here's what spooked investors.
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Early signs of growth are starting to show
Looking at the numbers, there are some encouraging signs starting to come through.
Appen reported revenue of $54.8 million for the March quarter, which is up 9% on the same period last year. That follows a long run of declines and is an early sign things may be stabilising.
Profitability also moved in the right direction. The company posted underlying EBITDA of $1 million, compared to a $1.5 million loss a year ago, showing some early improvement as activity picks up.
That said, margins are still under a bit of pressure. Gross margin slipped to 36.5%, down from 37.4% last year, which means cost pressure has not eased yet.
China is doing the heavy lifting
When you dig a little deeper, there's a clear split between the regions, and it explains a lot.
Appen's China business is already its largest and is clearly where the momentum is right now.
Revenue there jumped 88% to $34.9 million, driven by demand tied to generative AI projects. The business also exited the quarter with an annualised run rate above $144 million.
Earnings followed the same trend, with China delivering $5.2 million in EBITDA for the quarter. That's a solid improvement and gives a better sense of how the business looks when demand is there.
But outside the Asian giant, things are still uneven.
The Appen Global segment saw revenue fall 37% to $19.9 million, reflecting the stop-start nature of project work. It also posted an EBITDA loss of $3.1 million, which weighed on the overall result.
No changes to outlook disappoints the market
Another piece that likely didn't help is the outlook.
Appen kept its FY26 guidance unchanged, with revenue expected to land between $270 million and $300 million. Underlying EBITDA margins are expected to sit between -5% and -10%.
There were no upgrades to reflect the stronger China performance, which may have caught some investors off guard given the recent run in the share price.
Cash flow pulls back from last quarter
On the balance sheet side, Appen finished the quarter with $59 million in cash, down slightly from $59.8 million at the end of December.
Operating cash flow also came in lower at $3.8 million, compared to $14.7 million in the prior quarter, largely reflecting typical seasonal patterns.
Foolish takeaway
There are some better numbers in here, but I am not convinced the turnaround is locked in yet.
Right now, the China business is doing most of the work, and that leaves the overall result feeling a bit one-sided.
Until the global segment starts to stabilise, it is hard to get too confident in the recovery.
I would be watching this from the sidelines for now.
