Will the Artificial Intelligence (AI) Stock Show Signs of Surge Soon?
Will the Artificial Intelligence (AI) Stock Show Signs of Surge Soon?
Appian (represented by its ticker symbol APPN, seeing a 2.23% surge) has experienced a tumultuous journey as a publicly traded entity. Initially, it soared during the initial stages of the pandemic, driven by expectations surrounding its low-code technology. However, its stock encountered a steep decline in 2021. Since then, it has been struggling, reflecting the broader challenges encountered by software stocks following a "tech recession" in 2022 and sluggish growth thereafter.
Transforming into an artificial intelligence (AI)-driven process automation company, Appian has responded to these challenges by implementing layoffs and cost-cutting measures, refining its strategy to concentrate on the premium end of the market, and now exhibits a robust stance as it witnesses robust growth in cloud-based software and attains profitability.
The stock surged by 2.6% on Thursday, triggered by the impressive results disclosed in its third-quarter earnings report. The cloud subscription revenue, a metric of significance to the company, saw a 22% increase to $94.1 million. Although overall revenue witnessed a modest growth of 12% to $154.1 million, this was primarily due to a decrease in professional services revenue, aligning with Appian's strategy to transition more of this revenue to partner entities such as consultants that aid in product sales. Total revenue surpassed forecasts, coming in at $151.9 million.
Displaying marked advancements on the income statement, Appian demonstrated substantial progress on the bottom line. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) swung from a loss of $5.3 million to a profit of $10.8 million, aided by cost-cutting measures and a focus on the premium end of the market. The company reported adjusted earnings per share of $0.15, representing a substantial improvement from an adjusted loss of $0.20 per share and surpassing analyst estimates stipulating a $0.08 per-share loss.
Appian optimistically raised its full-year EBITDA projections of $5 million to $7 million, signifying a significant upgrade from its initial guidance for a loss of $20 million to $25 million at the beginning of the year.
Leveraging AI at Appian
Artificial intelligence (AI) is fast emerging as the future of technology, and for software companies such as Appian, AI has been seamlessly integrated into its process automation platform.
Prominent entities like Amazon are espousing the merits of "Agentic AI," an autonomous tool capable of making complex decisions based on real-time data. Matt Calkins, the CEO of Appian, contends that Appian's process automation serves as a superior alternative, asserting during the earnings call, "Appian utilizes AI in a process to create a superior version of Agentic AI."
Though it operates in a highly competitive domain, Appian's concentration on a single category and its focus on the enterprise market is a source of strength. Evidenced by its consistent 99% gross renewal rate, customers appear to be highly satisfied with the product.
The adoption of AI appears to be reaching a critical juncture within the software industry, with corporations increasingly becoming aware of its capabilities and seeking ways to harness its potential. Appian stands to capitalize on this opportunity. In an interview for Our Website, Calkins outlined how the market is leaning in Appian's favor.
"We've attained a more mature status as an economy when it comes to what we expect from AI," Calkins observed, arguing that Appian is well-positioned to deliver value. He further posited, "This phase of the AI national discourse, the international business discourse is going to be more favorable for us."
The AI Opportunity
Appian's cloud growth substantially accelerated from the second quarter to the third quarter, placing it in a strong position to achieve continued growth in Q4 and beyond 2022, particularly with the margin improvement. Management projected adjusted EBITDA of $6 million to $8 million for the fourth quarter and revenue growth of 14% to 17%, to a range of $95 million to $97 million, albeit its conservative top-line guidance.
Appian has yet to provide guidance for 2025 but, according to Calkins, he is eagerly anticipating the new year. Given the momentum in the quarter and the emerging dominance of AI within the software industry, Appian may be in store for a breakout year in 2025.
Appian's focus on AI integration in its process automation platform has opened up new opportunities for investing. With the increasing awareness of AI's capabilities among corporations, Appian is well-positioned to capitalize on this trend, as mentioned by its CEO, Matt Calkins.
The impressive third-quarter earnings report, showcasing a 22% increase in cloud subscription revenue and a swing from a loss to profit on the adjusted EBITDA, has further strengthened Appian's financial position, making it an attractive prospect for investors interested in the finance sector.