In a surprising and disappointing move, Appen has announced that Alphabet’s Google will be terminating its inbound services contract. This decision comes as part of a strategic review by the U.S. tech giant and has taken Appen by surprise.
Impact on Appen
The cancellation of the contract with Google will have a significant impact on Appen’s revenue, with the deal accounting for approximately 30% of the Australian AI-trainer’s 2023 earnings. This news leaves Appen in a position where strategic changes are necessary for the second time in less than a year.
Adjusting Strategic Priorities
According to a market filing, Appen will immediately adjust its strategic priorities in response to the termination of the Google contract. Previously, newly appointed CEO Armughan Ahmad stated his intention to grow and diversify revenue away from major tech companies, which currently contribute around 80% of Appen’s annual revenue.
Project Completion and Financial Impact
Appen will cease all work on projects covered by the contract by March 19. The termination of the Google contract will result in a loss of $82.8 million from Appen’s 2023 revenue, which amounted to $273.0 million.
The news of the contract termination has had a significant impact on Appen’s shares. As of early trade, the stock has plummeted by 39% to 28 Australian cents (18.5 U.S. cents). Overall, Appen’s stock has experienced a decline of over 99% since reaching its peak in August 2020.
Appen must now navigate the challenges brought about by the termination of its contract with Google. With a need for strategic changes and the loss of a major source of revenue, Appen faces an uncertain future. It remains to be seen how the company will adapt and recover from this setback.
Appen Faces Challenges Amidst Revenue Decline
Appen, a prominent company in Australia’s technology sector, has encountered significant setbacks recently. The company has lost its position in the esteemed S&P/ASX 200 benchmark index due to a decline in its valuation. Furthermore, Appen has been compelled to seek financial support on multiple occasions, with its most recent capital injection of A$30 million taking place in November.
Analysts have expressed concerns regarding Appen’s heavy reliance on major tech giants such as Meta Platforms, Google, Microsoft, Apple, and Amazon.com for its revenue. The company faced a severe blow when some of its key customers reduced their involvement in new projects utilizing Appen’s AI-training capabilities amidst the ongoing Covid-19 pandemic.
Appen’s financial performance has been adversely affected, as evidenced by a 13% drop in revenue in 2022 and an approximate 30% decline in 2023 (based on unaudited results published this week). The company reported an unaudited underlying EBITDA (earnings before interest, tax, depreciation, and amortization) loss of $20.4 million for the year 2023.
The decline in Appen’s share price may reignite interest from potential buyers who see significant potential in the company. In fact, back in November, Appen announced that it had received expressions of interest regarding the acquisition of certain divisions within their business. The company’s board has also signaled its willingness to engage in discussions with interested parties if a suitable proposal is presented.