Why the Appen share price crashed 12.43% on Thursday
We look at why investors bid Appen lower during yesterday's session.
ASX-listed machine learning and artificial intelligence company Appen (ASX: APX) was punished by investors on Thursday, December 10, after management lowered their full-year earnings (EBITDA) guidance.
Yesterday’s downgrade builds on mounting bearish sentiment around the company: The stock has been in a downtrend since early November, losing close to 30% of its value in that period. Investors continued to bid the stock lower in response to the earnings downgrade, with APX closing out Thursday’s session at $26.20 per share, representing a sharp 12.43% pullback.
The downgrade in focus
Centrally, this earnings downgrade was primarily driven by a change in the behaviour of Appen’s core consumers, leading to a weaker than expected operational performance during the current quarter.
Appen, which has historically seen strong revenue growth during the fourth quarter, said that such growth had not materialised this year.
As a result of this, the company said it now expected FY20 earnings (EBITDA) to come in at the range of between $106-109 million, around 15% lower than the company’s previous EBITDA guidance of between $125-130 million.
Appen, in attempting to explain the behaviour of its core customers, said:
'Our major clients are reprioritising resources towards new product areas that enhance their long-term resilience and value which is currently impacting work volumes on some large mature projects.'
Despite this ‘short-term’ earnings impact, the company noted that the key long term trends supporting Appen’s growth remain strong, while also saying:
‘This new product development trend is positive for us and we are seeing a significant increase in the number of new projects amongst our major customers, albeit some are early in their lifecycle.’
Appen share price: The analyst take
Analysts from the Royal Bank of Canada described the downgrade as disappointing, though nonetheless retained their bullish $40.00 price target and Outperform rating on the machine learning and artificial intelligence company .
RBC analysts, like Appen itself, noted that this earnings downgrade is somewhat surprising given the strong performances from the likes of Facebook and Google in the prior quarter, noting that Appen’s:
‘Core customers are US technology players who represent +80% of APX's revenues and have seen a re-acceleration in their search and advertising revenues in recent quarterly results.’
This outcome then, mused the investment bank’s analysts: ‘Begs the question - Is it customer behaviour changing or also competitive pressures?’
Despite this setback, Appen did note that it expects ‘strong growth rates’ to resume in 2021. That reassurance, did little to calm the market’s nerves on Thursday, it would seem.
Want to take a position in Appen, long or short?
Create an IG trading account or log in to your existing account to get started now.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.