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Appen’s 2020 outlook: benefits and drawbacks in focus

We examine how Covid-19 may positively and negatively impact the fast-growing company in 2020.

Degrees of impact

The impact of the coronavirus (Covid-19) pandemic was always going to be one of degrees.

Airlines for example: very impacted. Shopping malls: very impacted. Any business which has a heavy online component – be it the source of its sales or the setup of its workforce: not impacted as much.

Going off today's market release, the machine learning and artificial intelligence focused Appen seems to mostly lean into the less impacted category – though the company has nonetheless taken the time to flag the potential impacts that Covid-19 may have on its business.

Even so, if maintaining earnings (EBITDA) guidance is anything to go by, Appen does indeed fall into that latter category. Here, the company today announced that it was restating its previously guided FY20 underlying EBITDA outlook, which management still sees as coming in at the $125 million to $130 million range.

Better still, Appen’s management fired off a list of reasons why the fast-growing company may actually be set to benefit from the current environment, saying:

'Factors that support and may increase the Company’s 2020 performance include: a pandemic-led increase in the use of search, social media and ecommerce platforms, an increase in available crowd workers, growth in current and new projects and the weaker AUD.'

Finally, the company stressed that it has maintained a robust balance sheet – with cash on hand in excess of $100 million. This, said management, puts the firm in a strong position to ‘weather the pandemic as well as respond to opportunities as they may arise.'

Appen share price: bullish support, bearish considerations

Interestingly, though the Appen (APX) share price spiked during the morning session, the stock gave up those gains a little before noon – trading down 1.7% to $23.68 per share.

At the time of publishing, Appen traded a shade higher, at $23.94 per share.

Of course, besides listing the factors that may help the company’s performance, management also spun off a list of considerations that may dampen it. These included:

‘A slowdown in digital ad spending, a reduction in IT/digital spending, reduction of cancellation of services from Appen’s smallest customers, interruptions to global hardware supply chains and suspension of face-to-face projects such as audio data collection.'

Maybe most sensationally and on that first point, analysts from Cowen & Company estimate that Google and Facebook’s combined ad-based revenue may decline by a staggering US$44 billion in 2020 – as a result of Covid-19.

Watch this space.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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