Today, shares in artificial intelligence company Appen Limited (ASX: APX) finished the day over 7% higher despite no news or announcements from the company.
Appen is due to report its half-year results this Thursday. One could guess that some investors are buying up Appen’s shares in anticipation of a better than expected result.
Recent developments
It’s been a quiet few months from Appen. The last time we heard from the company, management outlined a new restructure
towards a customer-centric model with a product-led focus as opposed to its old project-based model.
From now on, Appen will report its performance based on four distinct business units, namely Global, Enterprise, Government, and China.
What I’ll be looking for in the H1 FY21 result
I’ll have my eyes on Appen’s new global segment in its H1 FY21 result. This division focuses on providing data annotation services and products to its major US technology companies. Companies like Google, Facebook (NASDAQ: FB), and Microsoft Corporation (NASDAQ: MSFT) have previously made up a large proportion of total revenue.
Ideally, Appen will start taking on a wider variety of customers that demand training data. This will reduce customer concentration and reduce reliance on the bigger players.
In the past, Appen’s revenue has been somewhat lumpy due to the cyclical nature of project-based work and other businesses’ capital expenditure.
Now, Appen is moving toward generating more revenue on a committed basis. Committed revenue provides more clarity into the future earning potential of a business. If Appen can improve in this area, it could cause a rerate of its shares.
Also worth watching is Appen’s development in its Chinese segment. When we last heard about this division, it was revealed that revenue was growing at 60% quarter on quarter. This is coming off a small base, but many of these new customers are tech companies involved in autonomous vehicles, health, and education, which seem to be high-growth areas.
Summary
While some are buying now in anticipation of Thursday’s results, I’ll be waiting on the sidelines for now. Ideally, the results will paint a clearer picture of the future outlook for the company.
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