Sunday, April 26, 2020

An AIM Small Cap Fund holding: AppFolio Inc. (APPF, $104.89) “AppFolio stays in this Portfolio” by: Haley Gaffner, AIM student at Marquette University. Growth lies ahead!

AppFolio Inc. (APPF, $104.89) “AppFolio stays in this Portfolio”
By: Haley Gaffner, AIM Student at Marquette University

AppFolio Jobs and Company Culture

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


AppFolio Inc., Inc. (NASDAQ: APPF) provides Saas cloud-based solutions for small to mid-sized property management businesses. APPF operates within three business segments: Value + Services (59.5%), Core Solutions (37.1%), and Other (3.4%). Value + Services include online payment systems, data analytics, marketing, and workflow configuration. Core Solutions consist mainly of subscription revenue for AppFolio Manger, AppFolio Manager PLUS, and MyCase. Other revenue includes one-time instillation fees or use of solutions without a subscription. AppFolio Inc. was founded in 2006 and is head quartered in Santa Barbara, CA.
• APPF entered the real estate market in 2008 and operate solely in the cloud.
• The company saw a 35% revenue growth, $16.3 million, net income increase, and EPS almost double in 2019.
• Management said in March earnings call that they expect 2021 revenue to range $312-$320 million.

Key points: APPF, just released their 10-K in March with a few updates on of them being the Chief Strategist and Co-Founder, Klaus Schauser, will be retiring in May, but will remain on the board and continue to work closely with the company. They have yet to announce who will take his place.

The company highlighted their growth in customers using either AppFolio Manger or AppFolio Manger PLUS. Real estate property managers using these solutions grew to 14,385, compared to 13,046. Units managed grew from 3.9 million to 4.64 million. This growth is reflected in their top line and net income growth. However, APPF had increased some of their expenses such as research and development and sales and marketing, which is why we haven’t seen that margin expansion play out. The company has seen strong top line growth, but it does not trickle down to EBIT and EBITDA margins quite yet. APPF did not buyback any shares in 2019, but rather reinvest that capital back into the company.

The company acquired Dynasty in January for $60 million dollars. Dynasty brought artificial intelligence to the company and is used in their leasing assistant Lisa, which is included in the AppFolio Manager PLUS. Although this acquisition seems immaterial in comparison to the company’s enterprise value, the technology it brings to APPF is a building block to how the company wants to reinvent the property management space. The company recently rolled out Smart Bill, which is an automated invoice system which is based on AI, freeing up manual labor.

The only guidance the company gave in the past earnings call was that they suspect revenue for 2020 to range from $312 - $320 million. APPF release Q1 earnings at the end of April, so there is hope to get some clearer guidance soon.  Given the current disruption, COVID-19, APPF has offered additional recourses to guide property managers through this time.

What has the stock done lately?
Since the REIT industry is a lagging indicator, the stock did not take a plunge until mid-March due to COVID-19. Since that initial plunge, the stock has slowly been climbing with a minuet hit in early April. The stock has underperformed the benchmark by 11% in the past month, but that is to be expected with the connection to the REIT industry which has been one of the worst performing industry in this global pandemic. In the past week, the stock has only performed roughly 1.5% below the Russell 2000.

Past Year Performance: APPF has seen major growth within the past year. The stock really took off in October and reached its highest price, $144.90, February 19. As mentioned before, the stock did take a dive mid-March, but has still outperformed the benchmark by nearly 9% for the year. The stock is currently sitting at $104, compared to last April at $86.

Source: FactSet

AppFolio has seen some substantial growth since we added it to the portfolio in January. Although the stock has taken a dip from the price that we bought it, I believe the company can still rebound. The company has maintained a strong balance sheet holding a relatively small amount of debt and decent amount of cash. The company saw an increase spend in Research and Development which I believe we will see that pay off in 2020, especially with the integration of AI into the real estate market. Although their revenue guidance given at the last earnings call may be a bit lofty given the current circumstances, I do not suspect the company to be in distress. Their liquidity remains intact and they have not taken out more debt. APPF continues to have a strong ROE, ROA, and ROIC. It is recommended that we hold this company to capture a greater portion of their growth story.

Source: FactSet