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AI firm Appen's shares tumble to 5-1/2-year low on bleak outlook

By Harish Sridharan

(Reuters) - Australia's Appen Ltd warned on Thursday of an up to 84% drop in annual earnings because of spending cuts by major customers, sending its shares tumbling to a near 5-1/2-year low.

The company, which runs artificial intelligence training for tech giants like Facebook, Google and Amazon.com, has seen a drop in digital advertising revenue, as its clients cut costs to manage soaring inflation and elevated borrowing costs.

Shares of the artificial intelligence firm have lost nearly three-fourth of their value so far this year, significantly underperforming the tech sub-index, which is down 31%. The stock fell as much as 18% to A$2.73, its lowest since May 2017.

Appen's business model involves outsourcing hundreds of data-checking projects to contractors who manually check and label online content, which clients then feed into their algorithms.

In August, the company had reported half-yearly earnings below its estimates and said it expected annual underlying EBITDA to fall from the prior year, citing weaker digital advertising demand and higher investment costs.

After the interim results, there has been no improvement in trading conditions in August and September, Appen said.

"The limited revenue visibility continues to be an issue for forecasting revenue and earnings," said RBC Capital Markets analyst Garry Sherriff.

Appen now expects full-year underlying EBITDA to be between $13 million and $18 million, down from $78.9 million posted a year earlier. It retained its revenue outlook of $375 million to $395 million, compared with $447.3 million last year.

Plans to increase the use of offshore facilities and cut costs are gathering pace, but the full benefits will not be evident this year, Appen Chief Executive Officer Mark Brayan said.

(Reporting by Harish Sridharan in Bengaluru; Editing by Shailesh Kuber and Subhranshu Sahu)