It all sounds sufficiently “tech” until you realise that Appen’s secret weapon is a 1 million-strong “crowd” of remote workers who do the data crunching.
“We have humans involved in our business because we’re working with human-annotated data, but we’re investing in tech to have the tech augment the preparation and delivery of that data,” Brayan says. “The first era as a listed company has been about scale and growth and jumping on that opportunity that’s there, but the second era will be much more tech-forward in the way we do things.”
A typical task for Appen and its crowd of humans might be sorting through a data dump of 1 million images of streets, with a request from a company to go through and tag every street sign in the photos. This would then be used to train the algorithms that will one day help driverless cars to function.
Members of Appen’s crowd, who work from their own homes, cafes or co-working spaces around the globe, go through and tag each of the images.
But, within the next three or so years, Brayan wants to have created a system in which humans can look at the first 10,000 of 1 million images, and then a machine learning-based computer program would tag the rest of the street signs. This will speed up processes dramatically, allowing Appen to offer a cheaper price for its services, and free up the time of its crowd so the company can take on more projects.
A question of value
Brayan believes it will also be the catalyst for investors to price the business like one of its tech peers, which generally trade on higher price-earnings multiples.
“The longer-term scenario is that we become more of a tech business. The tech elements will go to growth and we’ll be able to deliver higher volumes of data, improve margins, stay ahead of competitors and win more share from them through this investment,” Brayan says.
“When that will flow through to value? I don’t know. The market will have to see margin improvements … but in the next three years I think we’ll have a different looking business and a different sense of value.”
Brayan may be looking at the prospect of investors being willing to pay more for its earnings, but Appen is already trading on a forward price-earnings multiple of 31 times, compared to 14 times for the S&P/ASX200. The high price already has some investors wondering when the right time to sell out could be.
AusBil Investment Management portfolio manager Mason Willoughby-Thomas, bought into Appen in the lead-up to its 2015 initial public offering and has held on to a small parcel of shares since then, but he says it is getting quite expensive.
“I liked the story from the IPO days. It was one of those companies that was tough to get your head around because it had some ideas and concepts you had to understand to know where the company was going,” he tells AFR Weekend.
“We were one of the few institutional investors who took up the stock at the time, so it’s been a pretty good investment for me over the last four years … There haven’t been that many that have done this well.
“The only issue to consider is the valuation and at around the $14-$15 it is pushing it a bit.”
The company’s origins trace back to 1996 in the spare room of Dr Julie and Chris Vonwiller’s Gordon home in Sydney’s upper north shore. Julie had been a linguist at The University of Sydney and left to start her own automated speech recognition start-up.
Chris, an engineer with Telstra who had been the managing director of the telco’s multimedia division and the first chairman of Telstra Bigpond, joined Appen full-time in 1999.
The company won tech companies like Nuance, Philips, Siemens and Toshiba as clients in its early years and then in 2009 private equity came knocking.
Jeremy Samuel’s Anacacia Capital bought a 57 per cent stake in the business for an undisclosed sum and shortly afterwards in April 2010, Chris Vonwiller stepped aside as chief executive and the company appointed Bill Pulver to the top job. Pulver had previously been the president of online ratings agency NetRatings, and would go onto become the boss of the Australian Rugby Union – a position he held until mid-last year.
“We saw in Appen … the need for data for speech recognition for major tech companies and later content relevance for search and social media,” Samuel says.
A major milestone came in 2011 when Appen acquired US company Butler Hill, which had been focused on the search relevance market. With it came Appen’s first mega tech client, Microsoft.
Pulver says the business started growing “in an incredible way” after the deal.
“For me, [joining Appen] was a real jump outside my comfort zone, but it was a really interesting space,” he says. “We’ve tapped into a wonderful vein of opportunity with these smart people who want to work from home and it’s been a society change that’s aligned well with our clients and what we do.”
Pulver, who remains on the Appen board, is also an investor in the company and in 2018 he made about $9.8 million from the sale of 800,495 shares. His remaining stake of just under 1 per cent is worth about $14 million.
Appen also counts institutional investors such as Vinva Investment Management, Vanguard and Manulife Financial Corp on its register. The Vonwillers remain the largest shareholders with 10.4 per cent, according to Bloomberg.
“Floating a sub $50 million business is not easy to gain interest from larger institutions. Early brokers like Bell Potter and Taylor Collison supported the stock with research and introductions to various institutions. Later we introduced more of the bulge bracket investment banks,” Samuel says.
“We methodically crossed our stock to improve the quality of the share register, enabling new shareholders to access the growth.”
“If Facebook or Google or Amazon changed their strategy or their sourcing policies, it could have a significant impact on Appen and its competitors,” he says.
“[But] the market appears to be expanding rapidly. It’s a credit to the board and management team that they continued to produce results and meet or exceed expectations. It’s a true Australian success story.”
Brayan makes his mark
That is a key challenge for Brayan, a seasoned executive who previously led listed companies Integrated Research and Concept Systems, as well as resources technology provider MST Global.
For Brayan, running a business is like an endurance sport. Luckily for him, it’s one of the things he’s always been good at.
The lifelong Sydneysider reluctantly admits that he showed signs of being a good leader in high school, partaking in Scouts and also being made a school prefect, but beyond that he says he didn’t stand out from the crowd.
“I wasn’t academic or a sporting high achiever … but I was good at endurance events like running. The path for me [to becoming a CEO] was me saying that ‘This is what I want in my career’ and then chipping away at it,” he says.
“The metaphor I like is based on a Belgian cyclist from the ’40s and ’50s called Briek Schotte and he rode a particular race 20 times in a row, which is extraordinary. He got asked how he trained to do that he he said you have to ride until you don’t know which village you’re from and you have to keep going because if you don’t, you’ll never get home.”
Cycling is Brayan’s sport of choice, believing that to run a business you need not just a sharp mind, but a strong body. It’s not unusual for Appen’s US staff to receive a flurry of emails from Brayan on their Friday afternoon, while he’s having his Saturday morning coffee after a 230-kilometre ride.
Since he took the top job in July 2015 Appen shares have climbed from about 70¢ to $15.53 on Friday (when they added another 5 per cent in a good day for tech stocks). They hit an all-time high of $15.74 last year, before being caught up in the tech sell-off.
While the leap of more than 2000 per cent is substantial, Brayan says he doesn’t pay much attention to the share price and he’s more focused on delivering sustainable growth – something investors have come to expect, with the company issuing regular earnings upgrades.
Appen has forecast earnings before interest, tax, depreciation and amortisation for the full year of between $62 million and $65 million.
The vast majority of the company’s revenue is generated in the US, but it has recently started pushing more aggressively into China, which Brayan believes will soon overtake the US as the biggest market for AI in the world.
While Appen’s footprint in the region is currently small, building up its presence is one of Brayan’s key priorities for 2019. However, he is cautious that the market has a unique regulatory market and way of doing business that makes it different to expanding in other markets – a challenge that investors are also wary of.
“There are some local providers in China that are the incumbents, but if they do gain traction there it could be a significant upside,” Willoughby-Thomas says.
“The big opportunity moving into Asia is being able to sign up someone like Alibaba, Baidu or Tencent. That would be a big leg of growth.”
Brayan is focused on keeping it simple. “People understand what we do and that’s important. You have to have a plan and simply and clearly communicate it,” he says. “When I’ve tried to over-complicate things, that’s when it hasn’t worked.”