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Highlights
- Share Price Increase: Appen shares surged 4.1% to AU$2.05 by mid-morning following its third-quarter earnings report.
- Turnaround in Profitability: Appen posted underlying EBITDA of USAU$1 million, a sharp improvement from a USAU$7.5 million loss in the previous year.
- Revenue Decline and Growth Excluding Google: Revenue fell 13% to USAU$51.1 million, but EBITDA grew 35% excluding the prior year’s revenue from Google.
Shares of data services provider Appen (ASX:APX) surged at the market’s open, rising 4.1% to AU$2.05 by on 30 October 2024, after the company reported a significant turnaround in its third-quarter earnings. Appen, which provides data for machine learning and artificial intelligence models, has seen a notable recovery in profitability despite a drop in overall revenue.
Financial Performance
For the September quarter, Appen posted underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of USAU$1 million (AAU$1.52 million), a substantial improvement from a USAU$7.5 million loss in the corresponding period last year. This turnaround in earnings reflects Appen’s ongoing efforts to manage costs and improve operational efficiency, especially as the company navigates challenges posed by the loss of a major contract with Google earlier this year.
However, revenue for the quarter fell 13% year-on-year, coming in at USAU$51.1 million. This decline reflects the impact of Appen losing its contract with Google in January 2024, a blow that has affected the company’s top-line performance throughout the year. Nevertheless, when excluding revenue from Google in the prior year’s comparison, the company’s EBITDA grew by an encouraging 35%, underscoring the strength of its non-Google-related business segments.
Growth in Key Markets
Appen noted that its operations in China continue to experience “significant” revenue growth, providing a boost to the company’s overall performance. The company’s enterprise and government divisions are also showing potential for future growth, with leadership expressing optimism about their expansion capabilities.
Additionally, Appen’s focus on capitalising on the growing demand for artificial intelligence and machine learning solutions has positioned it well for future growth. The company recently launched a AAU$55 million capital raising initiative to fund new generative AI opportunities, aiming to leverage the rising demand for large language models (LLMs) that underpin various AI-driven applications.
Strategic Shifts
The impact of losing Google as a key client has prompted Appen to refocus its business strategy, placing greater emphasis on its enterprise and government divisions, which are seen as crucial growth drivers. With its China business gaining momentum and the broader AI sector expanding rapidly, Appen is actively pursuing new revenue streams to diversify its client base and reduce its reliance on any single customer.
