Why the Appen share price plunged 11% on Thursday

Appen share price collapses following H1 release

The Appen (APX) share price plunged on Thursday, 27 August, after the machine learning and artificial intelligence company released its first-half (H1) results to the market.

According to RBC analysts, Appen missed on both sales and EBITDA figures, which, according to the broker, was ‘driven by Speech & Image segment growth being lower than' RBC estimates.

In spite of that miss, RBC currently has an Outperform rating and a $43.50 price target on Appen, suggesting moderate potential upside from current price levels.

Interestingly, while the stock plunged sharply within the first few hours of trade – hitting an intraday low of $35.66 per share, the stock finished out the session at $38.65 per share, still down 11% for the session, but potentially suggesting that the market overreacted in the direct aftermath of the H1 release.

Interim results in focus

Looking at the highlights from Appen’s interim results, the company recorded impressive top line growth across the half ending 30 June, with revenue climbing 25% to $306.2 million. On a more granular level, the company's Relevance segment continues to be the major driver of growth, accounting for $273.9 million (+34%) of H1 revenues.

By comparison, Speech and Image segment revenue lagged during the first six months of Appen's FY20 – falling 20% to $31.9 million. Even so, management said positive long-term trends remain intact, ascribing this weakness to 'the inherent cyclicality of major programs.'

Commenting on these results, Appen’s Chairman Chris Vonwiller, noted:

'We are especially pleased with this result amidst the pandemic and the implementation of our growth initiatives. The Strength of our business model, market exposure, competitive position and our consistent executive give us the confidence to push forward with our investments to solidify future growth.'

Elsewhere, Appen revealed that in the last six months it had signed a platform agreement worth US$80 million – bringing the company's total annualised contract value (ACV) to US$103 million for the half ending 30 June.

In step with this robust top-line growth, Appen reported underlying earnings (EBITDA) of $49.1 million (+6%), while statutory EBITDA increased a more impressive 44%.

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Other bits and pieces: Dividends and FY20 outlook

Though APX is by a no means a dividend stock, the company nonetheless declared an interim dividend of 4.5 cents per share (50% franked) as part of today’s H1 results.

Looking forward, Appen kept its full-year guidance unchanged, expecting full-year underlying earnings (EBITDA) to come in at between $125 to $130 million, while maintaining earnings (EBITDA) margins in the high teens.

'The global slowdown in online advertising spend brought about by the pandemic will have a small impact on Appen's ad-related revenue in 2H,’ the company additionally flagged.

Underscoring such comments, advertising giants Facebook and Google both reported a deceleration in advertising revenue as part of their most recent results releases.