Appen slashes staff, promises more revenue transparency

Appen shares soared after the crowdsourcer announced plans to slash costs and staff numbers as part of a restructure to become more customer-focused.

Appen reiterated its forecast for EBITDA (earnings before interest, tax, depreciation and amortisation) between US$83 million ($106 million) and US$90 million in 2021 excluding an undisclosed charge for a reorganisation, which is expected to generate annualised savings of US$15 million in 2022 “before reinvestment”.

The company said the savings were “largely related to lower labour expense of US$15 million from 2022” as it restructures its operations to focus more on its customers. Appen is planning to hire more product-focussed workers and automate some processes, allowing it to cut servicing roles.

Appen chief executive Mark Brayan is implementing a restructure that will slash staffing costs. Credit:Steven Siewert

“Our new structure will drive performance and growth by aligning our business with market opportunities and customer needs”, said Appen chief executive Mark Brayan, without providing details on the plans.

Appen makes most of its money from crowdsourcing a global workforce of a million people that do the low-level grunt work for technology giants such as Facebook, Google and Amazon. The workers teach computers to recognise basic images and speech, laying down the groundwork for the development of ‘artificial intelligence’ solutions.

Appen shares, which were worth as much as $43.50 in August last year, rose 8 per cent to $12.28 on Wednesday morning after spiking as high as $12.92 early in the session.

The company said it will from now on report its results in US dollars, which would remove most of the foreign exchange rate uncertainty from its financial forecasts. About 90 per cent of Appen’s business is in the US, with the big tech firms accounting for some 80 per cent of that.

Appen’s shares have dived this year after a profit warning triggered concerns these major clients were becoming less reliant on its services.

Wednesday’s update showed the company’s order book stood at $340 million at the end of April, up strongly from $240 million in mid-February.

Wilsons Research noted the update did not include any profit margin guidance. The company previously said it expects EBITDA margins for the 2021 financial year ending December 31 to be in the high teens.

The firm cautiously welcomed Appen’s plan to change its revenue model away from project-based work to look for more committed spending by customers.

“This will require further investigation, but if Appen is able to move its revenue model from project-based work to committed spend by customers, this would increase revenue visibility and decrease revenue volatility, which is a positive,” said Wilson.

Wilsons said its overweight recommendation on Appen’s stock and its $22.83 share price target are under review.

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