Overlooked Stock: APPN Hits 2-Year High, Up Over 50% After Earnings

Core Viewpoint - Appen's stock has surged over 50% following a strong earnings report and the announcement of new AI capabilities, reaching over two-year highs [1][2]. Company Overview - Appen is a small application software company with a market cap of approximately $3 billion, focusing on automating processes such as data mining and business analytics [3]. - The company offers user-friendly application design software that allows for easier deployment and maintenance compared to competitors [4]. Financial Performance - Appen reported an adjusted EPS of 32 cents for the quarter, significantly exceeding the estimated 5 cents, and doubling the adjusted EPS from 15 cents in the previous year [5]. - Sales reached $187 million, surpassing estimates by $12 million and reflecting a 20% increase year-over-year [6]. - The company anticipates a 19% increase in cloud subscription revenue and has adjusted total revenue guidance from $698 million to $715 million, with full-year adjusted EPS revised from 33 cents to 52 cents [6][7]. Market Reaction - Analysts have reacted positively, with Morgan Stanley raising its target price from $29 to $45, while Barclays set a lower target at $37 [8]. - The stock had been trading sideways prior to this significant move in November, indicating a shift in market sentiment [8][9]. Industry Context - The broader software application space has faced challenges, with major players like Salesforce and Adobe underperforming, which may have contributed to Appen's recent gains as it capitalizes on its unique offerings [10][11]. - Appen's gross margins are at 76%, comparable to larger competitors, but it previously reported a negative net income margin of 1% last year [12]. - The recent earnings surprise and adjustments in EPS guidance have shifted market expectations for Appen, highlighting its potential for profitability [13].