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Appen share price sinks 25% as earnings tank amid uncertain outlook

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The Appen Ltd (ASX: APX) share price is tumbling on Tuesday after the company updated the market on an anticipated dint in its first-half earnings.

And while the artificial intelligence and machine learning data provider believes the second half of 2022 will be brighter, a lack of improvement in July means uncertainty remains.

The Appen share price opened 21% lower at $4.49 before tumbling to trade at $4.25 – representing a 25.57% fall. At the time of writing, Appen shares are trading at $4.37 each.

Let’s take a closer look at the news driving the ASX tech favourite into the red.

The Appen share price is plummeting after the company announced it expects to post a loss for the six months ended 30 June.

It said weaker demand for digital advertising caused some of its major customers to slow spending, bringing the company’s unaudited revenue for the first half to US$182.9 million. That marks a 7% drop on the first half of 2021, mainly driven by Appen’s global division.

Lower revenue, foreign exchange impacts, and investments in the company’s transformation activities caused its earnings to nosedive in turn.

Appen expects to post US$8.5 million of underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) – a 69% fall on that of the prior corresponding period.

It also expects the first half to have brought an after-tax loss of US$9.5 million. That’s down from a US$6.7 million profit in the first half of 2021.

In late May, Appen told the market its EBITDA would be “materially lower” in the first half.

Looking to the future, the company expects volumes to increase in the second half on the back of seasonal projects and a ramp-up of existing projects.

However, a failure to improve in July means uncertainty remains about a continued slowdown in its global customers’ spending and their exposure to weaker digital advertising demand.

As such, the conversion of forward orders to sales is less certain than it has been in previous years.

What did management say?

Commenting on the news dragging the company’s share price lower, Appen CEO Mark Brayan said:

The first half of the financial year has been characterised by challenging external operating and macro conditions.

[C]osts in this half are higher primarily due to transformation costs, and investment in product and technology … Together with lower-than-expected revenue, this has impacted earnings and margins.

The fundamentals of our business remain strong and our operational performance and the quality of our service we provide customers continues to improve … we remain committed to our longer-term growth strategy and confident of our prospects in the high growth AI market.

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