APPF Stock: Gaining with Its Vertical Industry Focus

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AppFolio Stock Builds Strength in Niche Space

Today’s stock represents one of our favorite investment strategies that we have written about many times. The companies trying to help other enterprises in their digital transformation through innovative solutions will return superlative returns to their investors.

The case in point being AppFolio Inc (NASDAQ:APPF), which provides cloud-based software solutions for small and medium-sized businesses (SMBs) in the property management and legal industries. The company’s software solutions enable its customers to work at any time and from anywhere, across multiple devices.

The company’s mission is to revolutionize vertical industry businesses like property management and legal, by providing them exceptional software and service. The solutions built by the company provide its customers with a system to automate vital business processes. As this market appears to have a bright future ahead, AppFolio stock is likely to post higher gains in the coming years.

The company helps SMBs grow and compete by enabling their digital transformation. Its popular product for the property management market is “AppFolio Property Manager” (APM). APM is a cloud-based software solution for the real estate market that provides property managers with innovative tools and services designed to streamline their property management businesses. The company gets more than 90% of its annual revenue from this market.

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APM automates processes for SMBs in the property management industry and helps them get instant insights so that they continue to grow their revenue. Its mobile presence also lets the property managers work from anywhere; they don’t have to be on their desk to access important business metrics and communicate with renters and owners.

Another product called “MyCase” is AppFolio’s legal software solution that enables solo practitioners and small law firms to make their practice more efficient. However, it accounts for less than 10% of the company’s revenues and it will take time before it becomes a significant source of income for the company.

AppFolio is focused on providing vertical industry businesses with great cloud-based business management software and services. Although the enterprise software space is highly competitive and full of many big players, AppFolio appears to be on strong footing with a focus on vertical industries in this space. As these industries grow, AppFolio products shall see traction and help APPF stock go higher.  

According to a forecast by Apps Run The World, the construction and real estate applications market is expected to reach $8.4 billion by 2021. (Source: “Top 10 Construction and Real Estate Software Vendors and Market Forecast 2016-2021,” Apps Run The World, January 15, 2018.)

Despite the market being very competitive, AppFolio continues to make inroads and gain customers in the property management vertical industry, which bodes well for AppFolio stock going ahead.   

The company announced its fourth-quarter and full-year results last month. It ended the quarter with about 11,700 property manager customers managing in aggregate 3.25 million units in their portfolios, up from about 10,000 customers and 2.68 million units. (Source: “AppFolio, Inc. Announces Fourth Quarter and Fiscal Year 2017 Financial Results,” AppFolio, Inc., February 26, 2018.)

Revenue for the full year went up by 36% and the quarterly revenue of $37.9 million grew by 35% year-over-year. Fourth-quarter “Value+” services revenue was $20.8 million, up 42% year-over-year. 

Value+ services are the optional services offered to the company’s APM customers, in addition to the core solution. These include web site services, electronic payment services, and tenant screening services. For the quarter, the majority of the growth was derived from increased usage of electronic payments and screening services by a larger base of property managers.

AppFolio stock has gone up by almost 70% in the last one year. The following stock chart shows the stupendous rise. However, APPF stock is still far away from its record highs.

appfolio stock chart

Chart courtesy of StockCharts.com

There are a number of challenges that SMBs face on a daily basis. Manual processes and different software solutions result in inefficiency and delays. AppFolio helps them overcome these challenges by automating the workflows and providing integrated technology solutions. As the country’s property market continues to transform and grow, the demand for AppFolio’s solutions shall continue to grow and thereby boost APPF stock.  

Analyst Take

AppFolio is modernizing property management through its cloud-based business management software. Its APM product is designed for property managers who want to automate, modernize, and grow their business.

The company’s vertical approach to enterprise software has helped in penetrating the market and will likely continue to help AppFolio in delivering strong products. If the company continues to be consistent with its product and technology innovation, APPF stock may turn out more double-digit returns in the coming years. Investors could consider AppFolio stock for the long term.