Shares of AI firm Appen Ltd [ASX:APX] fell off a cliff today, despite six months of strong revenue and earnings growth.
APX has been trading at record highs this week, as investors seek out hardy, COVID-proof shares.
When we last looked at the APX share price it was threatening to retrace some of the gains it had made on the year.
That might still hold true as last week’s gains have virtually been erased.
The share price is currently down 10.38% or $4.52 to trade at $38.99 per share.
Source: Tradingview.com
Things looking up except for the share price
APX will maintain its already upgraded full-year earnings in the range of $125 million to $130 million.
Despite this, expectations seem to have missed the mark.
Which we discussed earlier this month — expectations may have been too high.
For the first half, revenue grew by 25% to $306.2 million.
Earnings before tax came in at $49.1 million, up 6%.
Or up 35% to $62.5 million if you exclude growth investments.
APX’s net profit after tax also increased, up 20% to $22.3 million.
On an underlying basis its net profit slipped by 3% to $28.9 million.
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This is accounting for items such as after-tax impacts related to acquisitions, share-based payments, transaction costs, and milestone payment adjustments.
With the strong growth figures APX upped its dividend accordingly.
APX will up its interim dividend by 12.5% to 4.5 cents, of which 50% is franked.
Why the negative reaction?
These half-year results suggest APX could comfortably hit their profit guidance.
Investors, on the other hand, appear sceptical.
Though APX has been relatively unscathed by COVID-19, the company noted a slowdown in new business development and deferred renewals by smaller customers.
Ad-related revenue also looks under threat.
In H2 of CY20 APX is expecting a small hit to its ad revenue thanks to the global slowdown in online advertising spend.
Although the company expects COVID-19 to have little impact on its H2 revenue.
The company said that four out of five major customers are now using the Appen annotation platform (formerly the Figure Eight platform).
Chief Executive Mark Brayan said, ‘Figure Eight is firmly part of Appen now.’ Continuing:
‘The almost fully integrated business is delivering on our strategic thesis. Four of our five major customers are now using our annotation platform and we signed an enterprise-wide platform agreement with one of them that included an $US80 million annual commitment. This increased our total ACV (annual contract value) at the end of the half to $US103 million.’
Like I mentioned previously, the share price may just be retracing some of its gains.
It may also be victim to a broader theme where tech leaders are advancing relative to their peers.
With a huge P/E ratio of over 120, perhaps investors are a little cautious.
Regards,
Lachlann Tierney,
For Money Morning
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