Appen Ltd (ASX: APX) shares tumbled 11% to an intraday low of $2.51 on Thursday as almost 16 million new shares commenced trading this morning.
The ASX tech share has recovered a little in early afternoon trading and is now $2.56, down 9.54%.
The 16 million shares form part of the recent retail entitlement offer to raise $38 million among existing ordinary investors alongside a $21 million institutional placement for a total $60 million capital raising.
The retail offer, which closed on 6 June, allowed existing Appen investors to purchase one new share for every six Appen shares already held. The offer price was $1.85.
It is likely that Appen shares are down today due to a combination of all these new shares hitting the market and some capital raise participants selling in order to take their capital gains immediately.
In its entirety, the capital raise has led to approximately 32.2 million new Appen shares hitting the market.
The new shares attached to the institutional placement began trading on 25 May.
This represents about 26% of Appen's previous shares on issue and thus, a fairly substantial dilution.
Just 55% of shareholders took up the offer
The company announced last Friday that only 55% of shareholders had taken up the offer. Appen shares fell by 7% as a result.
About 8.4 million valid applications worth $15.6 million were received, well short of the $38 million target. The sub-underwriters purchased the remaining shares.
This poor take-up rate is not too surprising given the stock's immense struggles since 2019.
Appen was once a WAAAX club darling and has had a stunning fall from grace in recent years, as the chart below shows.
In recent weeks, Appen shares enjoyed a surge on the back of all the excitement over artificial intelligence (AI) shares.
This was sparked by a stunning quarterly update from United States tech giant Nvidia Corporation (NASDAQ: NVDA) late last month. Nividia has been a client of Appen since 2020.
Despite today's decline, Appen shares are still up 14% over the past month.
Appen shares deliver 40% gain to capital-raise participants
Appen shareholders who participated in the capital raise have received an on-paper capital gain of 40%.
The offer price was $1.85 and Appen shares are now trading at $2.56.
The company will use the money to pay one-off costs associated with its cost reduction program and for general working capital to support its return to profitability.
What's next?
Appen provides and improves data used for the development of machine learning and AI products.
Bloomberg recently noted a Zion Market Research study that projected the global AI market would expand at a compound annual growth rate (CAGR) of 39.4% and be worth US$422 billion by 2028.
At Appen's recent annual general meeting (AGM), chair Richard Freudenstein said the team was "energised" by the AI buzz of late, but "… our immediate task is to reset the business."
Appen released an investor presentation on the day of the AGM detailing its plan to achieve this reset.