Ann: FY2022 Trading Update, page-97

Two fundies off Livewire's Buy, Hold, Sell articulate the Appen situation perfectly:

+++

Ally Selby: Next up, we have Appen. It’s actually been talked about for all the wrong reasons. Ben, can you take us through it and is it a buy, hold or sell?

Ben Rundle (SELL): Yeah, I think Appen is still a sell. Deteriorating earnings quality and huge customer concentration risk. I think people have worked out pretty quickly the hard way that this doesn’t have the same sort of earnings quality as what you would see in a traditional SaaS business. I’m also very aware of companies that put out long-range earnings guidance and I think they’ve put out guidance for FY26. They can’t even hit their short-term guidance. So, I still think it’s a sell despite the move lower.

Ally Selby: Okay, over to you Michael. Its share price has moved 70 per cent lower over the past 12 months. Is it a buy, hold or sell?

Michael Wayne (SELL): It’s a sell. It’s been a fallen darling in every sense of the word. I can’t even keep up with how many times they’ve missed earnings forecasts in recent times. And the business is a lot more capital-intensive than many people would understand. It often is basketed together with all the tech businesses, but there are a lot of people in a room marking different things and inputting data into the computers so that machines can learn. They’ve got a very big, contract book. They’ve actually got more projects in the pipeline than ever before. It’s just that those projects are for a lot lower margins compared to some of their old projects. So for whatever reason, a lot of their large customers, although they might be giving them the occasional project or contract, are just not converting at the same margins as in the past. And because the management team keeps changing their earnings outlook, it’s a good indication that no one in that company really has a good grasp of exactly what’s going on. So we remain very, very cautious on Appen. The long-term outlook is very clouded and those former heady share prices are something of the past. So I’m going to keep a sell on that.