Appen took a hit back in December of 2020 because its core clients Facebook, Google, and Amazon shifted their focus away from the big projects that required Appen’s expertise. This is because these big tech giants are having to deal with fresh lockdowns because of COVID-19, and are now shifting their resources to new projects because of the pandemic.
What does this mean for Appen? Are they going to go out of business?
You probably don’t need to worry about this happening anytime soon. Appen is valued at $3.2 billion dollars but had to downgrade its earnings in 2020. It was because of this that Appen had a much weaker fourth quarter in earnings during the year 2020 with earnings dropping as much as 15%.
The news of all this happening sent Appen shares down which took a hit of over 12%
Despite this, Appen is still one of the big five WAAAX stocks on the ASX, along with WiseTech, Afterpay, Altium, and Xero.
As you may know, the company makes most of its money in the USA from crowdsourcing from a global workforce that does low level grunt work for technology giants. Some of you reading this may already be doing some of these jobs such as helping train Facebook, or Google algorithms by recognizing human actions taken under certain circumstances. The company also gathers a ton of speech data for speech recognition projects. Helping computers recognize basic images and speech is just the beginning of laying the groundwork for the development of Artificial Intelligence.
Appen makes around 80% of its revenue from just five clients including Facebook, Google, Microsoft, and Amazon.
With that in mind, and seeing the lower earnings result, it’s clear that COVID clearly disrupted and reshaped the activities and priorities of Appen’s main big clients.
But, the interesting thing is that although Appen has seen a decline in its earnings, Facebook, Google, Microsoft, and Amazon are all beating consensus advertising revenue estimates, meaning they are making more money and haven’t lost a thing.
The big question that Appen is asking now is it customer behavior changing, or is there competitive pressures. Perhaps the computer teaching part of the journey could be coming to an end. But it turns out that Appen’s chief executive says that its only a change in customer behavior that has caused less earnings and a stock hit.
This is because we’re in the middle of a storm of activity due to the fact that the pandemic means that customers are accelerating new product development.
For those who are worried about losing their jobs because of this, even though Appen may have been doing less work for the big clients, the company is always picking up new projects.
Appen is forecasting that it is going to have a strong year in 2021, and new product development is going to be positive for the company, and Appen is already seeing a big increase in the number of projects from its major customers.