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Appen takes hit on guidance update

Appen dropped by 12% on Thursday as the leader in machine learning and artificial intelligence announced a trading update for the year ending 31st December 2020.

When Appen released its first-half results in August, it reported strong growth despite a slowdown in new business development and deferred renewals due to COVID. The company had previously advised the market that the COVID-19 pandemic may dampen 2020 performance through a slowdown in digital ad spending, a reduction in IT/digital spending, reduction or cancellation of services from Appen’s smallest customers, interruptions to global hardware supply chains and suspension of face-to-face projects such as audio data collection.

November results, just finalised, show that while Q4 has improved on Q3 the usual ramp-up Appen traditionally sees at this time of year is not occurring. COVID has disrupted customers and it has also impacted face-to-face sales and customer engagement practices.

Appen is now expecting FY20 underlying EBITDA - including the impact of the stronger Australian dollar – to be in the range $106-$109 million. Second half underlying EBITDA is expected to grow at 30% plus over the first half.

Appen has noted that major clients are reprioritising resources towards new product areas that enhance their long-term resilience and value, which is impacting work volumes on large mature projects. This new product development trend is positive and they are seeing a significant increase in the number of new projects amongst major customers, albeit some are early in their lifecycle.

Appen also continues to win new customers in markets less impacted by COVID, including in new business areas such as shipping, automotive, education and health care.

Appen is confident the long-term trends for the business remain very positive, with spending on artificial intelligence growing rapidly and AI adoption should accelerate in a post-pandemic environment. Further, online advertising, a major source of revenue for its key customers and a reasonable indicator of their spend, is forecast to rebound strongly in 2021 according to analysts.

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