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Why I think this WAAAX tech share is a great buy

Phil Harpur
graphic image of man in business suit standing on the shoulder of AI robot

There is no doubt that Appen Ltd (ASX: APX) shares have had an amazing sharemarket ride over the past year, with its share price rising from rising from $12.80 at the beginning of 2019 to now trade for $24.00 at the time of writing.

But can this growth story continue?

What does Appen do?

Appen is the global leader in providing data for use in machine learning and artificial intelligence (AI). This includes speech and natural language data, image and video data, text and alphanumeric data, and data to improve search and social media engines. It services major technology companies, automakers, and governments.

In more basic terms Appen studies how people speak and interact with both each other and technology applications, packages the data and then sells it to tech companies to improve their artificial intelligence applications. For example, Appen assists companies such as Apple and Google to train their virtual assistants like Siri how to interact with people.

Appen does this by leveraging an on-demand global crowd of more than 1 million people across 130 countries and 180 languages and dialects.

Continuing to grow at a stellar pace

Appen continues to grow at a phenomenally fast pace. The company reported strong results for the first half of its financial year ending June 2019. Revenue was up 60% to $245 million, with underlying earnings before interest, tax, depreciation and amortisation (EBITDA) up 81% to $46.3 million. Underlying net profit after tax (NPAT) was up 67% to $29.6 million.

Appen continues to experience incredibly strong demand from many of the largest global technology firms. This has translated into very high revenue growth, assisted by recent acquisitions. Appen’s recent Figure Eight acquisition has diversified its customer base, creating synergies with its core business that continue to perform well.

Back in November 2019, Appen announced an increase to its 2019 full year earnings guidance driven by increases in monthly revenues and margins, and this lifted its share price. In particular, there is continued strong demand for its Content Relevance services.

One of Appen’s key competitive advantages is its well-established relationships with many of its key customers. Its customer base is highly concentrated with just a handful of customers accounting for a majority of its revenue base, which is evidenced in its high level of repeat business.

Foolish takeaway

I believe Appen is very well placed to see continued strong growth during 2020 and through to 2030, due to the rapidly rising demand for AI products and machine learning markets.

Although Appen only has a small number of direct competitors, with the AI market growing rapidly it is likely that more competitors will enter the arena over the next 5–10 years. However, I feel that Appen’s first mover advantage and entrenched market position places it in a strong position to fight off any major competitive threats that may come its way.

The post Why I think this WAAAX tech share is a great buy appeared first on Motley Fool Australia.

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Motley Fool contributor Phil Harpur owns shares of Appen Ltd. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020