“This has especially impacted our global division, particularly those customers with a high exposure to digital advertising. While only 26 per cent of our first half global revenue supports digital advertising, we are seeing a flow on effect to non ad-related projects and some of our core programs, as our customers reduce their overall spend,” he said.
“As stated in February, costs in this half are higher primarily due to transformation costs, and investment in product and technology resulting in higher employee expenses, recruitment, and IT costs. Together with lower-than-expected revenue, this has impacted earnings and margins.”
The disappointing earnings come after an 86 per cent slide in the company’s share price since August 2020, when it was trading at more than $40. On Monday, it closed at $5.71.
Appen founder Julie Vonwiller and former chairman Chris Vonwiller remain the company’s largest shareholders with a 7.5 per cent stake of the business.
Appen earnings typically skew to the second half of the calendar year. The business still expects more revenue to flow through in the second half as seasonal projects are delivered and existing work ramps up, but, the business conceded that there had been no improvement last month.
Given the tenuous position of the business, Appen is now reviewing its investment strategy to find a way to increase productivity and improve margins.
“The fundamentals of our business remain strong and our operational performance and the quality of our service we provide customers continue to improve, evidenced by higher NPS. We are increasing our range of products and through our product investments remain well positioned to serve our customers,” Mr Brayan said.
Although Appen has invested in automating more of its processes, at its core, it is still a data annotation company that uses a crowd of 1 million people to label data that feeds the artificial intelligence algorithm of tech companies.
It has been attempting to diversify its customer base and has made a push into China, which was a bright spot in its results in the middle. China revenue was up 141 per cent to $US18 million.
In May, Appen was briefly a takeover target of Canadian rival Telus, which owns its competitor Lionbridge. But, within hours of the non-binding, unsolicited bid being announced to the ASX, the company announced that Telus had backed out of the negotiations with no explanation.
Following the failed deal, investors asked if it was time for Mr Brayan to step down, but at the time he still had the support of the board, which is led by chairman Richard Freudenstein.