By Jessica Sier
Shares in data-processing outfit Appen collapsed on Monday after major customer Google terminated its contract, marking the struggling tech company as one of the first major ASX-listed casualties of the ongoing artificial intelligence boom.
Appen – which scrubs large data sets and on-sells them to large companies experimenting with artificial intelligence – was informed of Google’s decision to terminate its contract on Saturday.
Investors sent the shares tumbling 38 per cent to 28¢ on Monday morning, accelerating an 80 per cent slide over the last 12 months. The rapid rise of popular AI chatbot ChatGPT has allowed tech companies to automate their own data collection and management.
The Google deal – which appears to allow for just a two-month termination notice – will wind up by March 19. Google accounted for $86.8 million of Appen’s FY23 revenue, the company said.
“Appen used to be the pick-and-shovels business for artificial intelligence,” Tobias Yao, portfolio manager at Wilsons Asset Management, said.
“But the human input that Appen relies on isn’t really needed now. The speed of the AI adoption over the last 12 months has taken everyone by surprise. But Appen needs to pivot from what is now an existential crisis.” Wilsons does not own Appen shares.
Sydney-based Appen also reported an (unaudited) underlying earnings loss of $20.4 million for the full year. The company booked $273 million in revenue and said it has $33 million cash on hand.
The Appen board described Google’s decision as “unexpected and disappointing”.
The board – which is chaired by Richard Freudenstein, director of Coles, REA and Cricket Australia – pointed to the fledgling success of its $US46 million ($69 million) cost-cutting program that pushed revenue marginally higher throughout November and December last year.
The board also said Appen had no prior knowledge of Google’s decision to terminate the contract.
But retail investors are furious. Appen tapped the market for $30 million in working capital last November, and six months earlier it had raised $60 million to fund its turnaround program.
In May, newly appointed chief executive Armughan Ahmad said he had planned to diversify revenue away from the major tech giants, which accounted for around 80 per cent of revenue.
But the advent of generative AI and in-house data collection programs at major companies like Amazon, Microsoft, Apple and Meta has meant Appen has faced a persistent wind back in how much its tech customers spend on its services.
The growth of US-based Lionbridge – which offers a similar data-scrubbing service to Appen – has also placed pressure on Appen.
Appen shares have lost more than 99 per cent of their value since peaking in August 2020. It has also lost its spot in Australia’s S&P/ASX 200 benchmark index.
Around 4.9 per cent of Appen stock is short, meaning investors are betting on further price falls.
In November, Appen’s management said potential suitors were circling parts of the business and that the board would be prepared to speak with third parties in the event of a suitable proposal.
“The share-price slump could reignite interest in Appen from potential suitors,” Bell Potter brokers said in a note to clients on Monday.
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