Here's why the Appen (ASX:APX) share price is down 21% today

The Appen Ltd (ASX: APX) share price has crashed 21% lower following the release of a presentation. Here's what you need to know…

| More on:
Red wall with large white exclamation mark leaning against it

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It has been a bitterly disappointing day of trade for the Appen Ltd (ASX: APX) share price.

At the time of writing, the artificial intelligence (AI) data services company's shares are down 21% to $11.67.

This means the Appen share price has now lost over half of its value since the start of the year.

Why is the Appen share price crashing 21% lower?

Investors have been heading to the exits in their droves on Thursday after Appen released a presentation ahead of its appearance at the Macquarie Group Ltd (ASX: MQG) conference.

While there were many positives in the presentation, judging by the Appen share price performance, investors have chosen to focus entirely on the negatives.

What were the negatives?

Comments by Appen's CEO, Mark Brayan, relating to the uncertainty and impacts of an advertising downturn and regulatory factors on customers' spending and investment priorities appear to have spooked investors.

Mr Brayan revealed that COVID-19 has led to changes in the behaviour of many of its customers.

He explained: "COVID interrupted many businesses last year and that in turn reduced their digital ad spend for a period. This impacted our major customers' sources of revenue, and although digital ad spend has bounced back nicely, that experience is driving them to invest in new AI products that are less reliant on advertising."

In addition to this, the chief executive revealed that data privacy and anti-trust concerns are impacting developments, possibly with unfavourable consequences for Appen.

"Our customers are developing new AI products in response to COVID's impact on online advertising last year and regulatory pressures such as anti-trust and data privacy. This dictates the data they need for product development and impacts their engineering resource allocations and the volumes and types of data they need from us."

"As stated before, machine learning is an iterative process, and our customers are switching resources between development projects as they pursue new break-out products. This in turn has impacted a handful of our larger programs," Mr Brayan said.

However, this isn't new information. In response to an ASX query this afternoon, Appen reminded the market the messaging in the address today is consistent with what was said with its FY 2020 results.

What about the positives?

You may not believe it when looking at the Appen share price, but there were positives in the address.

The main one being that there have been no systemic changes to demand for relevance data. This is a major positive as the Relevance segment is easily Appen's most important segment, accounting for upwards of 90% of revenue.

Management also revealed that its industry-leading position has been maintained and pricing remains solid.

Mr Brayan said: "The competitive environment for relevance is unchanged with us and Lionbridge AI the key providers. We don't see unusual pressure on pricing. Our customers want a good deal and they negotiate well, but they will pay for quality and reliability and our reputation is strong in these areas."

Nor does the company see any fundamental changes in the way that AI is developed.

"We don't see meaningful changes in AI development techniques. AI models have and will continue to rely on a range of techniques to operate properly in the real world and hence high-quality labelled training data will continue to be a requirement for AI development. Unsupervised and self-supervised machine learning techniques are complementary to other techniques including supervised learning and using pre-trained models via transfer learning," the chief executive explained.

Where next for the Appen share price?

The Appen share price is now down 54% since the start of the year. This means its shares are trading at 17x estimated FY 2022 earnings based on a recent Macquarie note.

Though, the broker has yet to respond to this presentation and it isn't inconceivable that downgrades to estimates will be made.

In light of this, investors may want to keep their eyes peeled for broker updates in the coming days.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Fallers

A worried man holds his head and look at his computer.
Share Fallers

Why Graincorp, Light & Wonder, Orica, and Wildcat shares are falling today

These shares are having a tough time on Thursday. But why?

Read more »

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward representing the ASX tech share sell-off today
Share Fallers

Why Insignia, Light & Wonder, Mineral Resources, and Nuix shares are sinking today

These shares are having a difficult time on hump day. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Endeavour, Global Data Centre, OFX, and Paladin Energy shares are dropping today

Why are these shares under pressure today? Let's find out.

Read more »

A man sits wide-eyed at a desk with a laptop open and holds one hand to his forehead with an extremely worried look on his face as he reads news of the Bitcoin price falling today on his mobile phone
Share Fallers

ASX 200 uranium stock alert: Paladin Energy shares just crashed 29%!

Paladin Energy shares are under intense selling pressure on Tuesday.

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Champion Iron, Endeavour, Infomedia, and Resolute Mining shares are sinking today

These shares are starting the week in the red. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Arcadium Lithium, Block, Jumbo, and Mineral Resources shares

These shares are ending the week in the red. Why are investors selling them?

Read more »

A woman with short brown hair and wearing a yellow top looks at the camera with a puzzled and shocked look on her face as the Westpac share price goes down for no reason today
Share Fallers

Why Clearview, NAB, Resolute Mining, and Westpac shares are dropping today

These shares are under pressure today. But why?

Read more »

A man looking at his laptop and thinking.
Bank Shares

Why is the Bendigo Bank share price tanking today?

There are a few things that could be driving this bank lower today.

Read more »