I agree APX was certainly over inflated at $43. However I don't think the outlook is exactly "bleak" for FY22. The following might be worth a read from Livewire... One take on Appen's Future Prospects.
TOM PERFREMENT
2ND JUL, 21
Appen's evolution from a services-led business to a product-led business is now well underway but is still in its infancy. Mark Brayan has done a remarkable job as CEO, presiding over enormous shareholder wealth creation from circa 70c in July 2015 to approximately ~$14 today... I believe there is more to come. When Mark Brayan joined the business over six years ago, Appen was focused exclusively on language data; today Appen provides many modes of training data for AI, including speech, image, video, relevance, LiDAR, and more. The acquisition of Figure Eight in 2019 gave Appen two important opportunities; more enterprise customers (customers outside of the US tech giants), and Appen's own annotation product. This product and subsequent engineering investments have given Appen the opportunity to sell to and support anyone that wants training data, not just those that have invested in their own annotation product. Appen's own product has underpinned the significant increase in their customer numbers, 136 were added last year alone (a new record) and this will translate to strong revenue growth once matured, in H2 CY2021 and beyond. Appen's products are essential to its growth and will underpin its future. Their products will evolve as well, to provide more features, automation, and value for their customers. To put it simply, Appen is accelerating its transformation into an AI-powered provider of AI data and solutions. As Mark Brayan has previously alluded to, there will come a time where Appen is considered a true tech company, with high levels of recurring revenue, a product-led business model, and higher margins. When this time comes, Appen will be valued in a completely different league. In the meantime, from current levels, I still think Appen will generate share price growth for shareholders, even if valuations multiples stay constant, due to very solid 15% to 30% YoY growth in earnings across the next couple of years. But, it will be multiples expansion that really drives the next up leg in share price over the next 5 years if Appen achieves what they are setting out to do to become a true tech company. I'd like to see Appen become to AI, what AWS is to the cloud, Stripe is to payments, Twilio is to communications, or Snowflake is to Data Analytics. Appen spent its early years focused on annotating data for use in AI/ML models. Now, it’s expanding downstream to develop the models themselves and eat other pieces of the AI/ML value chain. It hasn’t been all clear skies to date, and the future won’t be easy either. It will face competition from rich companies and some of the smartest people in the world. It still has a lot to prove. It is, however, the market leader as ranked by market share (revenue) and has the longest track record and the deepest relationships with the tech giants, of any of the players in this space. In a decade, if Appen is successful, any company that wants to build something using AI or ML will just stitch together five different Appen services like they stitch together AWS services to build something online today. Appen could collect or generate data for you, label it, train the machine learning model, test it, tell you when there’s a problem, continue to feed it fresh, label data, and on and on. Via Appen APIs, companies of any size will be able to build AI-powered products by writing a few lines of code. Appen's ambitions are obfuscated by its starting point: using humans to build a seemingly commodity product. An investment in Appen is a potential play that data labeling is the right starting point to deliver the entire suite of AI infrastructure products. If Appen is right, if data is the new code, and the biggest bottleneck for AI/ML development, and the right insertion point into the ML lifecycle, then the brilliance of the strategy will unfold, slowly at first then quickly, over the coming years. It will all look rational in the fullness of time. Those who are piecing together the puzzle will realise that Appen is now on a product-led journey of building AI infrastructure, which looks pretty unsexy... until it doesn’t. Sentiment: Buy Disclose: Held. Tom
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