APPF Stock Forecast: AppFolio Stock Strengthens on Niche Focus

AppFolio Stock Forecast: APPF Stock Continues to Impress
iStock.com/Denis Isakov

AppFolio Stock Continues to Impress

Technology is improving things for small business owners. However, there are many challenges that these small- and medium-sized businesses (SMBs) face. There are many players that help such businesses grow by enabling their digital transformation. Investors stand to reap handsome gains by taking note of them.

One such example is AppFolio Inc (NASDAQ:APPF), which provides cloud-based software  to the real estate and legal sectors.

Although the real estate market provides the significant majority of its revenue, AppFolio plans to enter new vertical markets over the coming years. This will not only expand the market for the company, but it will also boost APPF stock.

The company’s mission is to revolutionize vertical industry businesses by providing great software and services. AppFolio provides property management software “AppFolio Property Manager” and legal practice management software “MyCase.”

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Its property manager customers account for more than 90% of its annual revenue and include third-party property managers and owner-operators. These customers manage single- and multi-family residences, commercial properties, student housing, as well as mixed real estate portfolios.

Its legal customers are typically small law firms that account for less than 10% of its annual revenue.

AppFolio software provides mobility to the modern property manager. AppFolio Property Manager is designed for property managers who want to automate, modernize, and grow their business. The company has more than 11,000 property manager customers, who typically manage portfolios ranging from 50 to 3,000 units. And this number will continue to grow in the future.

According to the research by Transparency Market Research, the global property management software market is likely to reach $1.8 billion by 2026.

This is due to the high rate of property development across the world. The market is projected to grow at a compound annual growth rate (CAGR) of 7.2% during the forecast period of 2018 to 2026. (Source: “Property Management Software Market Expected to Reach US $1,838.5 Mn by 2026,” Transparency Market Research, last accessed January 18, 2019.)

AppFolio is well-positioned to benefit from this growth. Its software helps property managers attract good renters, automate everything, and helps in getting insights that lead to growth in revenues and its portfolio.

The company continues to invest for its growth and for improving market share. Early this month, AppFolio announced the acquisition of Dynasty Marketplace Inc., which is a leading provider of advanced conversational artificial intelligence (AI) solutions for the real estate market.

The technologiesoffered by Dynasty Marketplace automate leasing communications, replace manual tasks, and help customers grow their portfolios. (Source: “AppFolio Acquires Advanced Artificial Intelligence Technology Provider,” AppFolio Inc, January 8, 2019.)

AppFolio believes that this acquisition will strengthen its intelligence capabilities and impart the ability to offer advanced AI services to real estate customers.

The overall market for business management software is global, highly competitive, and continually evolving in response to changes in technology, laws and regulations etc.

However, AppFolio has been churning out an impressive performance. It has been growing revenues for the past years, as shown in the table below:

Fiscal Year 2014 2015 2016 2017
Revenue (Millions) $47.7 $75.0 $105.6 $143.8
Growth 57.3% 40.8% 36.2%

(Source: “Quarterly Results,” AppFolio Inc, last accessed January 18, 2019.)

AppFolio announced third-quarter 2018 results recently. The revenue reported was $50.0 million, as compared to around $38.0 million in the third quarter of the previous year. This represented a 32% increase year-over-year. (Source: “AppFolio, Inc. Announces Third Quarter 2018 Financial Results,” AppFolio Inc, October 29, 2018.)

The generally accepted accounting principles (GAAP) net income was $5.5 million or $0.16 per diluted share, a 50% increase over the year.

Improving business has also had a positive impact on APPF stock, which has gone up by about 37% over the last one year, as shown in the stock chart below. Although the stock is off its record highs, it is likely to hit that mark sooner rather than later.

AppFolio stock has gained almost 50% since we covered it in Profit Confidential in March 2018.

appfolio-stock-graph-chart

Chart courtesy of StockCharts.com

Analyst Take

AppFolio’s products continue to be in great demand. The company’s growth strategy is to provide valuable cloud-based business management software to SMBs within each specific vertical.

The company constantly reviews potential opportunities to expand into additional vertical markets. This bodes well for APPF stock in the coming years.

AppFolio has been impressive with its strong performance so far. Going forward, there may be increased competition. However, the company is well positioned to benefit from the growing market and take its competitors head on.