Appen CEO Mark Brayan says the company has been hit by a change in customer behaviour not competition. Credit:James Brickwood
Appen is one of the big five WAAAX stocks on the ASX, along with WiseTech, Afterpay, Altium and Xero that have found favour with investors in recent years.
It makes most of its money in the US from crowdsourcing a global workforce that does the low-level grunt work for the technology giants. The workers teach computers to recognise basic images and speech, laying down the basic groundwork for the development of 'Artificial Intelligence' solutions.
Around 80 per cent of Appen's revenue is generated by just five customers which includes Google, Facebook, Amazon and Microsoft.
November results, just finalised, show that while Q4 has improved on Q3 the usual ramp up we traditionally see at this time of year is not occurring, Appen said on Thursday.
"COVID has clearly disrupted and reshaped the priorities and activities of our customers."
RBC Capitals Garry Sherriff said that in the wake of Facebook, Microsoft, Google, and Amazon all beating consensus advertising revenue estimates in their latest quarterlies, Appen's downgrade begs the question - "Is it customer behavior changing or also competitive pressures?
However, Appen chief executive Mr Brayan assured analysts it was a change in customer behaviour.
"We're in the middle of a storm of activity," he said, as Appen's major tech customers reshape their priorities in the wake of the pandemic.
"The pandemic has meant that our major customers are accelerating the new product development," he said.
Mr Brayan added that while work on some large mature projects had slowed down Appen was well placed to pick up new projects in the new year.
"Material projects have slowed as a result and reduced our revenue and the new projects are yet to require the data volumes that offset the slowdown."
"Although it is impacting this year, it is setting a foundation for a strong year in 2021," he said.
"This new product development trend is positive for us and we are seeing a significant increase in the number of new projects amongst our major customers, albeit some are early in their lifecycle."
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Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald's deputy business editor and online business editor.
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Appen hit as tech giants pivot to new AI projects - Sydney Morning Herald
