ASX 200: Appen FY22 earning preview
Appen says its FY22 earnings will remain unaffected by a non-cash pre-tax impairment that has undermined its share price following a boost provided by the buzz around generative AI.
ASX-listed AI company Appen is set to release its earnings results at the end of February, following a tumble in share prices due to its reporting of a sizeable non-cash impairment arising from the poor performance of operations in new markets.
When will Appen report its latest earnings?
Appen is scheduled to report its 2022 full-year results on Monday, 27 February 2023.
What should traders look out for?
Appen is an AI company that bills itself as a specialist in 'data for AI lifecycle' with over 25 years of experience.
The company provides data collection, labelling and annotation services using machine-learning assisted tools, with major partners including tech giants such as Microsoft, Nvidia, Amazon Web Services and Google Cloud.
Key partners in other sectors include Bloomberg, Boeing, Dolby, Siemens and The Home Depot.
As an AI company, Appen's share price received a boost in early February from the huge buzz surrounding the economic and business potential of generative AI platform Chat GPT.
Investors see the potential for Appen to receive an investment boost from the excitement over generative AI, according to analysts at Morgan Stanley.
Appen's share price has since sunk, however, on its flagging of a $204.3 million non-cash pre-tax impairment in its upcoming full-year results.
The pre-tax impairment reflects the lacklustre performance of operations in new regions relative to earlier expectations.
'The assessment of the carrying value of Appen's New Markets (excluding China), CGU [cash generating unit] reflects Appen's FY22 financial performance,' Appen said in a statement to the ASX made on Monday, 13 February.
'Given the FY22 performance, future revenue growth assumptions have been reduced to reflect lower growth rates, resulting in an impairment loss.'
Appen's share price fell 10% in Monday morning trading following the announcement.
Its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) will not suffer as a result of the impairment, however, because the impairment is non-cash in nature. Underlying net profit after tax will also remain unscathed.
The data company remains confident in its ability to fulfil the guidance update announced in October, which marked the eighth downgrade and followed trading in August and September without improvement.
It expects revenue to be closer to the upper end of US$375 million to US$395 million, and EBITDA prior to foreign exchange adjustments near the low end of US$13 million to US$18 million.
Appen seeks to diversify revenue
One of Appen's chief accomplishments as an AI company has been its ability to garner some of the world's leading tech giants as clients and partners.
This has also left Appen's revenue sources highly concentrated amongst a small coterie of large-scale tech clients, making it vulnerable to any shifts in demand.
Appen recently saw its revenues undermined by a drop in advertising-related AI projects by Internet giants including Google and Facebook. This shift was a direct result of Apple making changes to its iOS platform to restrict the tracking of customers for digital advertising purposes.
To compensate for this decline, Appen has stepped up its expansion into new offshore markets. While operations in China have posted a strong performance, other new markets have produced lacklustre results, contributing to the non-cash pre-tax impairment for its upcoming report.
Appen is nonetheless confident that operations in new offshore markets will help to drive revenue growth in future.
'There remains high conviction in the future growth prospects of the New Markets (excluding China) business,' the company said in its latest update.
Appen's fortunes could also receive a boost from the appointment of a new CEO at the end of last year. On 14 December, Appen announced the appointment of Armughan Ahmad as its new CEO and president, replacing Mark Brayan in the top role.
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