Appen Moves Operations Offshore as Shares Continue to Decline

Appen Decline

Data-for-AI leader Appen saw shares plunge on October 6, 2022, after releasing a full-year 2022 trading update. Shares fell by 11% on the day of the update and have since continued to decline. At press time, trading is down 18% from pre-announcement levels. Once valued at over USD 4bn, the company’s market cap now weighs in at just above USD 200m — levels not seen since May 2017.

In the trading update, the data annotation (incl. language data) company indicated that revenues and EBITDA for full year 2022 would be lower than full year 2021.

According to the company’s update, revenue is expected to be in the range of USD 375m and USD 395m, lower than its record revenue of USD 447m in the prior full year. Full-year EBITDA is also expected to come in at between USD 13m and USD 18m. 

Appen, which provides AI data for machine learning, cited a slowdown in major customer spend, as well as a higher proportion of “small, lower margin projects”, as factors contributing to the expected results.

The company operates and reports on two sections: Global Services and New Markets. The former consists of services for five US-based big tech companies. The latter, on the other hand, includes all products (i.e., data annotation platforms and tools) plus all services provided to enterprise and government customers.

Global Services has an all-time high project count, according to the update. However, the company said that “the size and stage of these projects is insufficient to offset the reduction in revenue from some of our higher margin core programs.” 

Australia-headquartered Appen already employs crowdsourced workers in more than 170 countries. However, the company said it now plans to increase its use of offshore facilities for a number of business functions including project delivery, engineering and business support. 

However, the impact will not be felt immediately. “While our plans to increase the use of offshore facilities are gathering pace as well as our actions to reduce costs, the full benefits of these programs will not be evident in FY2022,” according to CEO Mark Brayan.

New Markets, which includes Appen’s less-mature but fast-growing China market, continue to be a focus as the company sticks to its plan to diversify revenue streams. “We remain committed to our long-term strategy including investments in New Markets to diversify revenue and products to improve productivity,” Brayan said.

While Appen has experienced a tumultuous year, the data-for-AI industry continues to be an interesting prospect for language service providers (LSPs) looking to move into adjacent services. Players in this space include TransPerfect, WeLocalize and RWS, while Lionbridge sold off its data-for-AI business in December 2020 to Telus.