Desperate tech dog Appen wants to latch on to new AI gold rush...

Desperate tech dog Appen wants to latch on to new AI gold rush
James ThomsonMay 16, 2023 – 11.58am
Chanticleer


Once upon a time, Appen was a star in the ASX’s tech scene. But 10 downgrades later, its new CEO is raising capital to chase the fresh phase of the artificial intelligence boom.


Appen is a pioneer of the AI world, but now it needs to find a new way into the sector. David Rowenone

But Appen has proven to be the undisputed dog of the WAAAX pack. Under former chief executive Mark Brayan, Appen horribly underestimated how sticky its revenue from big tech clients really was and, as underlying EBITDA fell from $101 million in 2020 to just $13.6 million in 2022, the trust of investors was lost.

Ironically, Appen does have a legitimate claim to the title of one of Australia’s AI pioneers. Its business was built on using an outsourced pool of workers to crunch data for the original AI models, including labelling data and testing its relevance.

But the never-ending profit downgrades have meant the company has been completely left behind by the generative AI revolution that started in late 2022 with the launch of ChatGPT.

But Ahmad, who was appointed four months ago, believes the group has turned the corner.

Not only has it slashed costs – including 300 of its 1500-person workforce – but thebig clients who are driving the AI revolutionare starting to tap Appen’s expertise to improve the large language models (LLMs) that underpin their generative AI technology.

Ahmad name-checks Microsoft, Apple, Meta, Google and Amazon, which he says account for about 80 per cent of Appen’s revenue, as firms that are starting to realise the role Appen can play.

Essentially, Appen believes it can be a sort of clean-up crew for AI developers and adopters. Human feedback is required to ensure that an AI model is providing relevant results without typical problems such as bias, the delivery of toxic content and what are called “hallucinations” – basically false statements presented as accurate ones.

Problems to solve
Appen’s pool of outsourced workers – what it refers to as its crowd – are now starting to be used by LLM model developers to test the relevance of its technology.

Additionally, Ahmad says companies that are deploying AI systems from the developers such as OpenAI or Nvidia will find that systems don’t necessarily work in a call centre or a back office without the fine-tuning only a human can provide.

“In generative AI, in order to do the fine-tuning, you need a human in the loop,” Ahmad says. “We are seeing the demand move very fast.”

The market, Appen says, can grow from just $US8 billion ($12.4 billion) in 2021 to $US111 billion in 2030.

Ahmad certainly told a good story on Tuesday. He shared some of his background growing up in difficult circumstances in Pakistan, and pointed out that his incentives are completely tied to getting the Appen share price back up – the first tranche will only kick in when the stock hits $7.63 – and all but promised Appen will be cash positive at an EBITDA level by the end of the year.

But he also pointed out some embarrassing problems he still needs to solve. Appen’s sales staff, he says, traditionally waited for potential customers to contact them, rather than chasing new business. He bluntly admits he is still probably about six months away from providing the sort of visibility the market wants over revenue.

Appen is clearly very reliant on a concentrated group of customers, but exactly how important Appen is to those big tech names Ahmad drops isn’t really clear. As Ahmad says, he hadn’t even heard of Appen before he was approached for the job; that raises questions over the idea that investors have been sold over the last five years, that Appen is a key player in the tech development programs of these giants.

The capital raise, which has been underwritten by Barrenjoey, will at least keep the banks away for a while; Appen says lender Westpac has agreed to waive financial covenants for the June testing of its undrawn credit facility, conditional on completion of the raise.

How much more patience investors are prepared to show the company remains to be seen.

“We need to see evidence of a definitive turnaround in key metrics for a business which to date has had limited earnings visibility,” RBC analyst Garry Sherriff says.