Tech sector perseverance amid buoyant share market: Appen restates earnings guidance

Tech sector perseverance amid buoyant share market: Appen restates earnings guidance

The Australian Information Technology sector had an impressive 2019 with a total return of 33.47% during the period, making it one of the top-performing sectors in the country. However, due to COVID-19 outbreak, the sector was adversely impacted. Till 17 February 2020, the sector benchmark index continued to move in the upward direction and was positioned at 1604.40 points.

However, post that a drastic fall was seen in the index from 18 February 2020 till 23 March 2020. On 23 March 2020, the benchmark index closed at 847.86 points. From 24 March 2020, the sector bounced back and has continued to progress in the upward direction. In the last month, the sector index has generated an impressive return of 22.89%. On a YTD basis, the IT sector’s performance was -14.55% as on 16 April 2020, slightly above the benchmark index S&P/ASX 200 (-18.97%).

The primary reason for the sudden improvement in the sector performance was the economic Stimulus package of $17.6 billion announced by the Australian government and another $130 billion JobKeeper payment. Also, several companies took preventive and damage-control measures to ascertain that the business, people and the community are protected.

While some businesses were struck hard by the spread of the infectious disease, some companies faced limited threat from the outbreak. However, looking at the situation, most of the companies have gone for cost-effective initiatives to make sure they do not face a liquidity crunch.

In this article, we would be discussing a technology Company, Appen Limited, whose business did not get impacted due to the COVID-19 outbreak.

Appen Limited (ASX:APX)

Appen Limited is a publicly-traded technology company listed on the ASX. The Company is collecting as well as labelling data such as audio, text, video and speech is used for building as well as continually enhancing the highly innovative AI systems around the world. Appen has expertise in over 180 languages. APX has 1+ million skilled contractors and has the most sophisticated annotation platform in the business.

Appen’s Market Opportunity

Artificial Intelligence is an emerging technology with a broader and brighter future in the coming decade. Artificial Intelligence helps in developing a system that is capable of imitating human ideas and acts. In present times, the application of Artificial Intelligence can be seen across every industry. Executives around the globe are including Artificial Intelligence in their respective company models to increase sales and efficiency in their business.

Now, it is essential that the Artificial Intelligence system should work efficiently. For this, the system needs to be trained via machine learning (ML) which requires quality datasets to deliver best possible results.

The Company has been supporting the growth of Artificial Intelligence for more than 20 years via top quality, human-annotated data. APX’s clients use these high-quality data for improving their ML algorithms that fuel the AI-based solutions.

Few Examples of Artificial Intelligence

  • Digital assistants and chatbots
  • Recommenders on search engines
  • Fraud protection systems and more

COVID-19 Situation in Australia

There are indeed rising cases of COVID-19 in Australia. However, the rate at which the cases are going up is quite low as compared to most of the leading countries around the world. All thanks to the preventive measures taken by the government and restrictions imposed on the travel and social gathering to lessen the impact of the coronavirus.

As on 17 April 2020, at 6:00 AM AEST, the Australian government reported 6,497 confirmed cases of coronavirus with 63 reported deaths. In the last 24 hours, the country has had 39 new cases.

The number of new cases has been declining steadily since hitting a peak towards the end of March. The data reflects that Australia is getting in a much better position, and things are likely to come back on track soon.

Appen’s Update on COVID-19

On 15 April 2020, Appen Limited updated on the operations, performance & actions taken to respond to the situation created by the COVID-19 pandemic.

Appen, in its announcement, stated that the Company is committed towards the safety and well-being of its workforce and hence it has allowed all its employees to operate from their homes. However, APX’s skeleton crews in protected facilities and employees in China have joined back to the office. Appen’s work culture, as well as infrastructure, supporting a smooth shift to the at-home jobs.

Appen also confirmed that during this period, the customer delivery, as well as support, was not hampered. Also, the global crowd worker is well placed, functioning from their homes. The Company is also providing support as well as discussing with the crowd workers during this period.

On the business front, the Company is regularly keeping an eye on its performance and forecast for 2020. As per the latest available information, Appen restated its 2020 guidance for the full year to be in between $125 million to $130 million.

The Company’s performance would depend on certain factors highlighted by the Company. These include:

  • A pandemic-led surge in the usage of search, e-commerce platforms, as well as social media.
  • An increase in existing crowd laborers, expansion in the present as well as new projects.
  • A weak Australian Dollar.

Reasons which may impact 2020 performance include:

  • A slowdown in spending and digital.
  • A drop in IT or digital expenditure.
  • Drop or withdrawal of services from Appen’s smallest clients.
  • Disruptions in global hardware supply chains.
  • Face-to-face projects suspension including audio data collection.

Appen also confirmed that it has maintained a healthy balance sheet and has cash resources over $100 million and respond to prospects as they may arise.

Other than this, the Company’s performance for 1H FY2020 was quite good, with 37% growth in the total revenue and 20% growth in the statutory EBITDA. Underlying NPAT improved by 20% while statutory NPAT declined by 10%.

Stock Information:

APX stock closed the day’s trade at $24.720 on 17 April 2020, up by 3.822% compared to the previous close. The Company has a market cap of ~$2.9 billion and around 121.65 million outstanding shares. APX has an annual dividend yield of 0.38% and P/E ration of 67.490x. The stock has generated a YTD return of 7.35%.


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