Appen, a leading provider of data sets for artificial intelligence (AI) training, has experienced a significant decline in revenue as its top customers cut back on AI spending. This has resulted in a sharp drop in the company’s stock price and market capitalization. Appen’s CEO, Armughan Ahmad, who took on the role earlier this year, has implemented a turnaround plan that includes a capital raising and cost-cutting measures.
Appen has traditionally relied heavily on revenue from its five largest global customers: Microsoft, Apple, Meta (formerly Facebook), Google, and Amazon. However, these customers have reduced their tech spending and evaluated their AI strategies in response to external challenges, leading to a 27% decrease in Appen’s global services revenue to $US100 million. As a result, the company has been forced to reposition itself for the ChatGPT era, targeting Fortune 500 businesses and developing new products to address the need for human review of language models’ accuracy.
While Appen has secured several new deals for its generative AI projects, these tend to be smaller pilots or trials that have not yet generated significant revenue to compensate for the decline in income from its deep learning projects. Analysts suggest that Appen’s core deep learning product will continue to drive the majority of its revenue and growth in the short term, as the commercialization of its generative AI opportunity is still at an early stage.
Appen has made progress in its cost reduction efforts, achieving 63% of its $US46 million target. The company aims to be underlying EBITDA and cash EBITDA positive by the end of the year by prioritizing investments in higher potential areas and further reducing its cost base. However, Appen acknowledges ongoing headwinds and uncertainty across all customers, forecasting second-half revenue to be closer to first-half revenue in the following fiscal year.
The concentration of Appen’s revenue among its core customers has historically made the company vulnerable to budget reductions. For example, when Apple introduced privacy changes that allowed users to opt out of app tracking, Appen’s revenue suffered a blow as clients like Facebook and Google cut back on spending related to digital advertising AI.
In summary, Appen is facing significant challenges as its top customers reduce their AI spending. The company is working on its turnaround plan but also recognizes the need to adapt to the changing landscape of the AI industry. While there are promising developments in the generative AI space, Appen’s core deep learning product remains its main source of revenue. With ongoing uncertainties and competition, the company aims to stabilize and grow its core business before fully capitalizing on the generative AI opportunity.
