Appen (APX) | Technology day highlights huge opportunity
- Wide-ranging Technology Day: APX hosted a virtual Technology Day which covered a lot of ground, including (1) the underlying drivers of their business, (2) practical demonstrations of their technology platform, and (3) a brief overview of their position in the wider industry. Our key takeaways are outlined below.
- Simple tasks need multiple AI models…: The first demonstration was that a relatively simple task from a user point of view – a voice-based purchase through an app – involves 5 different AI models: 1. Converting speech to text, 2. Converting text to actionable instructions, 3. Labelling images to make them searchable, 4. Finding the optimal product response to the search query, and 5. Providing alternative, related product options.
- …which means exponential growth: These models are only as good as the data that is used to train them and more data is better (to improve a model’s accuracy from c.60% to c.80% requires 30x more data, or c.300m examples). These existing AI models also need to be kept up to date (c.34% of models need to be updated monthly according to McKinsey), on top of new use cases being developed, which means the demand for quality training data is growing rapidly.
- Internal technology key: APX demonstrated the use of its platform in annotating a photographic image and a LIDAR image of road scenes, intended for use to train autonomous vehicle AI. The comparison was shown between solely human annotation and machine annotation with human checking – the process is 140% faster using the latter. APX is also investing in making the crowd management platform more efficient (faster and better allocation of project jobs to improve output quality and volume) and the client workspace (for companies which lack the technology to organise, manage and monitor data annotation projects internally).
- Appen a global leader: Whilst it was acknowledged that accurate data is difficult to find around the size and growth of the market, most previous assessments have been proven to be conservative on both fronts. In any case, management was confident that double-digit growth will continue for many years to come and that the combination of APX’s size (as one of the two largest in the market, with over 1m crowd workers) and technological advantage (amongst the market leaders) will give it a clear competitive advantage. This is based on (1) having more data improves their internal machine learning, which increases processing efficiency and quality, which becomes a virtuous circle; and (2) processing scale, quality and speed are increasingly important parameters for large customers.
Investment view: With a recent re-affirmation of FY20 guidance, we believe APX’s operations are unlikely to be materially affected by COVID-19. With (1) around 85% of revenue coming from large customers (also unlikely to be materially impacted, with some even benefiting from increased use of online search, social media and shopping), (2) a robust financial position and (3) positive industry dynamics, we believe APX is well placed to continue its strong growth. BUY maintained.