Stock of the day: Appen

(AI video summary)

This video was created on 16 May 2025 for IG audiences by ausbiz.

ASX code: APX

Appen's upgraded guidance boosts share price

Appen's share price jumps after upgrading its financial year (FY) 2025 revenue guidance, projecting growth of up to 11% to between $235 million and $260 million. China has emerged as a key growth driver, with revenue from that market rising over 70% in 2024.

The company recorded a $20 million loss in its previous FY, though this was an improvement as it continues working toward profitability. Today's guidance upgrade sent shares soaring by nearly 24%.

From WAAAX star to recovery story

Appen was once part of the lauded WAAAX stocks (WiseTech, Afterpay, Appen, Altium and Xero). These were considered Australia's answer to the United states (US) FAANG tech giants - Facebook (now Meta), Apple, Amazon, Netflix, and Google (now Alphabet) - before experiencing a significant fall from grace.

Analysts highlight the continued success in China with its impressive 70% growth from last year. Noting that artificial intelligence (AI) has become a significant revenue driver for the company, with improving earnings before interest, taxes, depreciation, and amortization (EBITDA) and well-managed costs.

Despite these positive developments, from a long-term chart perspective, Appen still faces a considerable journey to recover its former market position.

Business transformation in progress

Appen has shifted from its original focus on data tagging services to AI modeling. This transition became necessary as computers grew approximately 60 times more cost-effective at performing similar tasks.

The company continues investing in automation, prototyping, and testing of large language models (LLMs). Success in executing its 2025 strategic priorities will be crucial for its survival.

Investment outlook

Despite the positive share price reaction, investors should approach Appen with caution. The company's market capitalisation remains disproportionately high compared to its current profitability, and it has lost some major customers in recent years.

Analysts note that Appen's future hinges on its ability to execute its strategic transformation. Without successful implementation of these strategic initiatives, the company could face existential challenges in the long term.

Analysts remain divided, with most maintaining a 'hold' recommendation until they can better assess the company's ability to execute its strategic shift.