On Monday, the tech sector witnessed another dramatic downturn, as shares in Appen slumped by 37%, adding to the bloodshed in the market. This time, it was not the lithium and nickel resources sector but the tech sector itself that took a hit. The embattled artificial intelligence (AI) data services company announced a major setback, with Google terminating a $120 million contract for Appen's services.
Appen's shares plummeted to a low of 27 cents, only to recover slightly to 29 cents just after midday on Monday. This is a far cry from their 52-week high of $3.87 and an astounding all-time high of $42 a share during the 2021 pandemic-driven tech boom, which reached a staggering $5 billion market capitalization.
Appen disclosed to the ASX on Monday that, as part of a strategic review process, Google would be terminating its global inbound services contract with Appen, leading to the conclusion of all projects with Appen by March 19th of this year.
In a statement, Appen emphasized that it had no prior knowledge of Google's decision to terminate the contract and had only been informed of the decision on Saturday. According to Appen's statement, its 2023 revenue from Google amounted to US$82.8 million (approximately $A125 million) at a gross margin of 26%.
Appen also released its unaudited 2023 results, revealing a total revenue of US$273 million for the year, a decline of approximately 30% compared to the previous year. This highlights the significant impact of Google's decision, as the Google payments represented roughly a third of the falling annual revenue total.
In the statement, Appen expressed disappointment over the unexpected news, especially in light of the progress made in its transformation and performance during November and December 2023.
In addition to the revenue figure, Appen shared other details of its 2023 performance, notably reporting a loss of $US20.4 million on an EBITDA basis. This casts doubt on the company's claims of improvements in November and December, as the underlying positive EBITDA figures for those months still resulted in an overall company loss.
Now, with the uncertainty surrounding the replacement of the Google contract, Appen faces the possibility of further staff cuts and the potential end of its existence as an ASX-listed company.
