By Byron Kaye and Upasana Singh
(Reuters) – Australia’s Appen Ltd, which runs artificial intelligence training for Facebook, Google and Amazon.com Inc, said a spending slowdown by clients would bring its first half-year loss since listing, sending its shares tumbling.
The warning on Tuesday shows how hefty spending cuts by global tech giants, facing raging inflation and rising interest rates, are filtering into the Australian share market where Appen has been an analyst favourite due to its high-profile customer base.
Adding to Appen’s challenges, new privacy features in Apple Inc products have reduced the ability of big advertisers including Facebook, which is owned by Meta Platforms Inc, and Alphabet Inc’s Google to target users, impacting their appetite for pinpoint-accurate user data, say analysts.
Appen’s business model involves outsourcing hundreds of data-checking projects to contractors who manually check and label online content, which clients then feed into their algorithms.
After warning of a profit decline in May, Appen said it now expects a net loss of $3.8 million in the six months ended June, which would be its first interim loss since listing in 2015, from a net profit of $12.5 million a year earlier.
“Conditions have changed through the year,” Chief Executive Officer Mark Brayan said on an analyst call.
“We believe this is a slowdown, rather than a competitive situation,” he added, when asked if the company had lost business to rivals like Canada’s Telus International, which along with Appen dominates the global market for so-called artificial intelligence training.
Shares of Appen fell as much as 29% by midsession, against a half percentage point decline on the broader market.
“Visibility of earnings has historically been low and in this environment of weakening global ad spend… it seems likely that visibility has taken a step down,” Jefferies analyst John Campbell wrote in a research note.
RBC Capital Markets analyst Garry Sherriff said cooling investor sentiment was “likely to continue … given multiple material downgrades and questions on revenue visibility and strategy”.
(Reporting by Byron Kaye in Sydney and Upasana Singh in Bengaluru; Editing by Rashmi Aich)