Could Appen find its footing with positive tailwinds?
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The Appen Ltd (ASX: APX) share price is enjoying some attention today. This comes after a leading broker released a positive note regarding the language technology data and services company.
At the time of writing, shares in Appen are swapping hands for $12.57, up 6.6%. Although, the Appen share price is still more than 65% lower than where it was a year ago.
Let’s uncover the latest news propelling the tech company higher today.
Increased ad growth attractive for Appen share price
Analysts at Citi have run the ruler over Appen shares and like what they see.
According to the note, the broker sees increased investment from US tech titans Facebook and Google as tailwinds for the Aussie company.
Specifically, an acceleration in advertising revenue growth could act as a significant driver for Appen’s AI/ML data services.
Last week, Google’s parent company Alphabet reported an 84% year-over-year (YoY) increase to US$7 billion from YouTube ad revenue in Q2. Meanwhile, Facebook delivered a 56% YoY increase in advertising revenue – pulling US$28.58 billion in Q2 FY21.
It appears analysts at Citi are expecting some of these funds to trickle down to Appen to promote further growth.
The broker maintained its buy rating and $18.80 share price target on Appen, representing a potential upside of 49.6%.
Potential M&A target
In mid-July, Citi put a circle around Appen as a potential merger and acquisition target. At the moment, activity in the M&A space is at a multi-year high and the broker believes the former ASX darling could find itself down M&A sights.
Siraj Ahmed of Citi explained:
With the recent increase in M&A and given Appen’s position as a leader in the AI training data space as well as client exposure, we would not be surprised if Appen was a potential acquisition target for an IT Services or BPO firm
Finally, the company trades on a price-to-earnings (P/E) ratio of 27.8 based on the current Appen share price.
Appen is slated to report its half-year results on 26 August 2021.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Mitchell Lawler owns shares of Appen Ltd and Facebook. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Appen Ltd, and Facebook. The Motley Fool Australia owns shares of and has recommended Appen Ltd. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.