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About AppFolio
Well, it was certainly only a matter of time before the players within the software as a service (SaaS) industry found yet another niche within the real estate sector, serving anyone and everyone, whether it is a large, multinational property management company looking to fill up units like there’s no tomorrow or someone perhaps operating on a smaller yet still meaningful scale, maybe looking to lease or completely sell a single or multi-family property.
At least, that’s exactly what AppFolio did only a few years back, starting in 2006.
Headquartered in Santa Barbara, California, AppFolio has become the dominating player when it comes to aiding both renters and lessors, tenants and landlords, and well, you get the point, as this company’s software assists these parties when it comes to practically anything related to marketing properties and eventually having their clients lease their property or properties, as well as helping them with matters of overseeing and managing their finances (i.e., helps largely handle and organize one’s accounting and visibility into other related and critical financial metrics and trends thereof), also, among other features, acting as a rent collection platform for lessors of all shapes and sizes, with the inherent intent of bettering this entire, typically stressful process by streamlining operations for the lessor and also making payment, maintenance requests and many other core aspects of living easier for tenants.
Being a SaaS company, it only makes sense that it operates the business model that almost every single other SaaS company does, generating the vast majority of its revenues through the payments made by their clients in the form of a monthly subscription package.
While I’m at it, being that AppFolio is a SaaS company with a concentration in real estate, some might say it is worth chewing on the fact that this company might be a bit cyclical, an example might be when the real estate market softens less lessors are able to do what they do best, and lease, which could potentially lead to less needing to use AppFolio’s software and overall platform, however, while you also consider this, I’d urge you to also generally appreciate that SaaS companies tend to have sticky products (i.e., it’s hard for an organization to disentangle itself from its SaaS partner once they get integrated, therefore it is in their best interest to usually just stay on with a company like AppFolio, Workday, etc..), and I also personally think that a lot has to go wrong in the real estate sector for the company’s larger corporate clients to wean off of this platform, being that apartment property managers tend to be a common solution for those that are already on the lower end of the earning spectrum, and it’ll be a very cold and dark day when said managers aren’t in need of AppFolio’s SaaS.
No, I am not saying that AppFolio is a snarky company.
The other positive with this company being a SaaS operator is that its clients tend to pay on a monthly basis and not on a usage basis, so regardless of how much business a property manager is seeing in, say, a month’s span of time, they will still need the company’s platform.
Enough of my blabbering.
That was some information relating to AppFolio and the rest is what you probably came to read.
AppFolio’s stock financials
According to its present market capitalization, AppFolio is an $8.36 billion company with a corresponding stock price of $230.86 while also touting no regularly issued dividend to its shareholder base and a price-to-earnings (P/E) ratio of 67.17
In digesting these initial figures, we could’ve already reasonably assumed that AppFolio was a billion-dollar enterprise and that it probably wouldn’t have offered a dividend to its shareholders since SaaS in most contexts means growth and growth shouldn’t be drained by means of a dividend, but what is undoubtedly more pressing is the company’s valuation, specifically as it is stated in the form of its price-to-earnings ratio, which stands markedly higher than the standard, commonly held fair value benchmark 20, the implication being that the company’s shares are objectively overvalued at the time of this publication.
Still, I am holding a sort “wait-and-see” posture at the moment, being that SaaS typically equates to growth and still being a relatively young company, I’d like to think that in the form of annual revenues, AppFolio is growing on a year-over-year (YOY) basis, and at a brisk pace at that.
Sometimes growth warrants paying a premium, even though it can still definitely be said that this is a sizable premium to pay for an ownership stake in the AppFolio dominion.
At any rate, I’d like to first gloss over the condition of the company’s balance sheet, as AppFolio’s executive team is in charge of $409 million in terms of total assets along with $112 million in terms of total liabilities, acting as both a great foundation for this company to presently maintain, but also, more importantly, a fantastic financial launching pad that the company can leverage (literally, but hopefully not too much, excuse my pathetic debt humor, please and thank you) mainly through sourcing, eyeing and inking strategic acquisitions with companies that basically do the same things it does but just at a higher and perhaps even better rate (given just how nimble smaller SaaS companies tend to be), not to mention artificial intelligence-related companies that also operate within the walls of SaaS and real estate that could help this company grow even quicker.
Suffice it to say, I have absolutely no problems with the net balance sheet breakdown of AppFolio.
When it comes to the company’s most recently reported annual revenue figures (as shown on the income statement), AppFolio’s sales since 2019 have been sort of like NBA superstar Anthony Davis in the later stages of his high school career; growing consistently and remarkably each and every year.
Specifically, AppFolio’s revenues have indeed gone up each and every year during and between 2019 and 2023, starting out at a low of $256 million in 2019, rising the next year to $310 million, $359 million 2021, $472 million in 2022, pushing up to its latest displayed figure of $620 million, as reported in 2023.
The company has almost tripled the amount of its revenues during the short period of time and frankly, so long as AppFolio’s cash bleed isn’t atrocious, I am liking what I am seeing a lot, especially when one considers just how hard-hit the entire real estate sector was during COVID-19, yet this real estate technology-centered enterprise still managed to grow its revenues, thankfully validating my initial point surrounding this company’s sort of shield of protection through its larger apartment manager partners and clients.
As it relates to the company’s cash flow statement, AppFolio’s total cash from operations during this exact same timeframe have all been in the green (albeit not by all that much, truthfully), which honestly surprised me since I automatically assumed this firm would’ve been hemorrhaging a bit in order to continue growing at such a rapid rate.
I’m proud to be wrong in this case, that’s for sure.
For a little more color on AppFolio’s cash flow, it has ranged between a relative low of $25 million (2022) and a more recent high of $60 million.
AppFolio’s stock fundamentals
As it is shown on Charles Schwab’s platform, AppFolio’s net profit margin stands at an impressive 17.32%, on its own telling me that the company has an innate ability to turn a (net) profit while also growing, which, make no mistake about it, is a very, very difficult task, especially within the landscape of tech sector.
Once again, I find myself tipping my hat to AppFolio’s leadership team.
Should you buy AppFolio stock?
Context matters.
When I first saw the company’s price-to-earnings ratio, I was almost ready to throw in the towel (not really, but work with me here) and just say to myself that as a byproduct of all of the artificial intelligence hype surrounding any SaaS company, AppFolio’s valuation has become inordinately elevated and I’ll just probably end up slapping a “hold” rating on the company’s stock (NASDAQ: APPF).
I refuse.
This company doesn’t just have a little bit of growth and more potential to hopefully follow, but instead it really does have some excellent figures that it has already cemented, such as its notably strong net profit margin, its growing annual revenues and stable-to-growing cash flows, and who could forget about this SaaS operator’s war-ready balance sheet.
This is one of the more rare instances in which I objectively believe that AppFolio’s stock has proven that it is worth the premium, and that is why I am comfortable offering the company’s stock a “buy” rating today.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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