The Appen Ltd (ASX: APX) share price has sunk in morning trade after the business missed its own FY21 guidance.
All eyes on the Appen (ASX: APX) share price
Growth fails to please market
Currently, the Appen share price is down 19.72% to $6.88.
Key financial results for the year ending 31 December include:
- Revenue of US$447.3 million, up 8% year-on-year (YoY)
- Underlying EBITDA of US$78.9 million, up 11.6% YoY
- Final dividend of AU$0.10 per share 50% franked, flat YoY
Appen’s core labelling division, Global Services, returned to growth with a 5% increase in sales.
The company moved away from ad-related data annotation towards new projects, which it had flagged in prior reports.
Its emerging New Markets division increased revenue by 21%, led by a four-fold increase in China sales.
Appen has onboarded 11 autonomous vehicle businesses in addition to expanding its Government and Enterprise customer accounts.
Here’s why the Appen share price is sinking
Despite the business recording growth at the revenue and earnings line, it missed its own guidance provided in August and just four months before the end of the reporting period.
This ASX reporting season, businesses that have missed guidance have seen their share prices slashed.
For example, Life360 Inc (ASX: 360) is down 26% today while Netwealth Group Ltd (ASX: NWL) fell 10% last week.
Appen also recorded a 10.4% fall in profit after tax.
Management cited higher non-cash amortisation charges, in addition to costs relating to the recent acquisition of Quadrant.
What next for the Appen share price?
The Appen share price will be supported by new long-term financial targets.
By 2026, the business expects to:
- At least double FY21 revenue
- Improve customer mix with one-third revenue from non-global customers
- Deliver EBITDA margins of 20%
Assuming the business can execute on these targets, Appen would achieve revenue of close to US$900 million and EBITDA of US$180 million.
The issue is that if Appen can’t even meet its own annual forecast, how can investors have confidence it can reach a target five years away?
To reach its targets, the business will sacrifice short term EBITDA and dividends to invest in growth.
Appen will also no longer provide short-term EBITDA guidance.
In the nearer term, FY22 earnings are expected to be skewed towards the second half again.
“We are highly focused on these targets and will invest for growth in new products, sales and marketing, partnerships and explore M&A opportunities with a focus on long-term revenue growth”
