ASX-listed Appen Ltd (AU:APX) collapsed over 40% today following the news that American tech giant Alphabet’s (NASDAQ:GOOGL) Google has terminated its global inbound services contract with the company. The news came as a shock to Appen, which called the move “unexpected and disappointing.” The contract is set to expire on March 19, 2024. It poses an existential risk to Appen, which derived nearly 30% of its Fiscal 2023 revenue from Google.
Appen is a data company that improves data used in artificial intelligence (AI) and machine learning products. Appen’s data types include speech and natural language data, image and video data, text and alphanumeric data, and relevance data. Appen’s revenue stream is heavily dependent on a select few large tech companies. APX shares have lost over 87% in the past year, including today’s stock price plunge.
Here’s How Google’s Exit Will Impact Appen
Appen announced Google’s contract termination in its unaudited results released this morning. Appen generated $82.8 million in revenues from Google’s contract in 2023. Appen is now tasked with finding an alternate revenue source to fill the gap and reduce its dependence on a few tech companies. Google’s exit could also spark off the possibility of a slew of exits by other major tech companies, creating a massive setback for Appen.
Given Google’s contract loss, Appen said it will immediately review its strategic priorities and give more details during its Fiscal 2023 results on February 27, 2024. Appen was already witnessing declining revenues post-pandemic, with a 13.1% fall in 2022 and a 29.7% decline to $273 million in 2023. The company is undertaking cost-cutting initiatives and raised $30 million in November 2023 for working capital requirements.
As per its unaudited results, Appen expects to post an underlying EBITDA loss of $20.4 million for 2023. Appen is particularly disappointed with the news as it had made significant progress in November and December 2023, generating revenues of $24.1 million and $25.9 million, respectively.
Is Appen a Good Stock to Buy?
On TipRanks, APX stock has a Moderate Sell consensus rating based on two Holds and one Sell rating. The Appen Limited share price target of AU$0.97 implies 246.3% upside potential from current levels. Please note that these ratings were given before Google’s exit news and could change meaningfully once analysts review their stance.
