Global AI Boom Boosts Appen’s Potential

Australia | Mar 06 2018

Impressive growth achieved in 2017 leaves analysts positive and enthusiastic about Appen's growth potential on the back of a global boom in artificial intelligence.

-20 years of private growth delivers bonanza for public investors
-Business needs to diversify client base for broad-based growth
-US buy positions Appen to dominate global market for content relevance services

By Nicki Bourlioufas

ASX-listed Appen Ltd ((APX)) is a major player in the global language services industry, selling annotated data sets for use in e-commerce and machine-learning applications.

One of its claims to fame is that the annotation is done by actual humans – about 400,000 linguistics experts and content evaluators working, largely from home, in 130 countries and using more than 180 languages and dialects. Appen has two operating divisions – its foundation business in Language Resources and the rapidly growing area of Content Relevance.

Language Resources provides training data for speech-recognition technologies in devices such as mobile phones, computer games and TV consoles. Content relevance provides smart data to improve online discovery by search engines and social media platforms.

As Artificial Intelligence technologies explode, Appen is also expanding into fields such as fraud detection, risk management, medical imaging and in-car navigation.

From spare room to much more than spare change

Appen was established in 1996 by linguist Dr Julie Vonwiller, a researcher at the University of Sydney, and her engineer husband Chris Vonwiller, who was inaugural chairman of Telstra’s Bigpond before he retired to join the family business in 1999.

Starting in the spare room of their home in Gordon, Sydney, the Vonwillers expanded the business privately, developing long-term relationships with clients including Microsoft and the US government. The company now employs 374 staff in seven offices across the US, UK, Australia, China and Philippines.

Appen went public in January 2015 at 50 cents a share, and quadrupled its share price in two years. Since early 2017, the company’s impressive record of revenue growth and strong margins has pushed the stock from $2 to a high of $10.60, which it hit after the release of full-year results on February 21.

At the end of November, the company announced the US$80m acquisition of Leapforce Inc, a Silicon Valley provider of search relevance services with what Appen describes as “a highly automated and proprietary end-to-end technology platform”.

Acquisition and organic growth augur well for 2018

Brokers are positive on Appen's prospects for the current financial year. Canaccord Genuity, UBS and Citi all maintain their Buy recommendation, with price targets of $10.80, $12 and $12.19 respectively.

Bell Potter sets a middle course, raising its 12-month price target by 22% to $11, post the financial report release in February, but also downgrading its recommendation to Hold from Buy as the new target is only about 5% above the share price.

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