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