AppFolio (APPF 0.02%), a software company serving real estate and legal professionals, reported its first-quarter results last Thursday.

Revenue growth accelerated sequentially to 35%. The huge gain was driven by a potent combination of strong growth in new customers and higher usage rates among existing ones. The story didn't look as pretty on the bottom line, but management stated that it's investing heavily to expand headcount in an effort to drive the next phase of the company's growth.

AppFolio Q1 results: The raw numbers


Q1 2019

Q1 2018

Change (YOY)


$57.1 million

$42.3 million


GAAP net income

$3.7 million

$4.3 million


GAAP earnings per share 




Data source: AppFolio. YOY = year over year. GAAP = generally accepted accounting principles. 

What happened with AppFolio this quarter

  • Subscription revenue, which the company refers to as core solutions, grew 28% to $20.8 million. 
  • Revenue earned from fee-based services like payments, which the company calls Value+ services, grew 37% to $33.7 million. Management said that electronic payments, screening services, and insurance services were the primary drivers of the big jump.
  • Other revenue, which is mostly earned from stand-alone subscription services from its acquired businesses, grew 72% to $2.6 million. 
  • Total revenue of $57.1 million came in ahead of the $56.8 million that Wall Street had predicted.
  • Operating expenses jumped 50%. Management said that the huge jump is largely attributable to employee additions.
  • Earnings per share of $0.11 fell short of the $0.15 that analysts were expecting.
  • Cash balance at quarter-end was $41 million. Total debt was $50 million, primarily related to acquisitions.
  • AppFolio completed its $54 million acquisition of Dynasty, which provides artificial intelligence solutions for the real estate market.
  • The board authorized a $100 million share-repurchase program during the quarter. However, the company did not buy back any stock during the period.
  • Property manager customers grew 11% to 13,409. Property management units under management expanded 20% to 4.08 million.  
  • Legal customers grew 8% to 10,485.
Hand holds a cell phone displaying icons and the words real estate. A cityscape in background

Image source: Getty Images.

What management had to say

CEO Jason Randall stated that the company continues to execute against its long-term objectives:

In the first quarter of 2019, we continued on our mission to revolutionize vertical industry businesses by providing great software and service to our expanding customer base. To that end, we invested in innovation, our technology platforms, and product improvements designed to further deliver value to our customers. We remain focused on our customers' experiences and on our talented team and culture, which we believe is a key element of our success. 

Randall also provided investors with some details about a newly launched product called AppFolio Investment Management:

AppFolio Investment Management offers our investors more transparency and more information on their investments. The AppFolio investor portal provides easy access to statements, appraisals, property information cash flows, K-1s, and more, making it a very effective and modern way to communicate with our investors.

Check out the latest earnings call transcript for AppFolio.

Looking forward

CFO Ida Kane reaffirmed the company's full-year revenue guidance range of $250 million to $255 million. The midpoint of this range represents revenue growth of 33%.

AppFolio's stock declined by a few percent in the trading day following the earnings announcement. The decline is most likely attributable to the lower-than-expected EPS result for the quarter and management's decision to hold its full-year guidance steady. AppFolio was also trading around 16 times trailing sales prior to the earnings release, so the stock's nosebleed valuation was probably also a factor.

The good news for investors is that this report was mostly filled with good news. Revenue growth remains strong, customer count is growing, and the recent additions of Dynasty, AppFolio Investment Management, and AppFolio Property Manager Plus should help to fuel growth for years to come.

On the downside, funding all of that growth is putting a lot of downward pressure on near-term profits. The recent acquisition spree has also resulted in the company's balance sheet having more debt than cash. Management also failed to disclose its annual dollar-based net expansion rate in this quarterly report. In other words, this report wasn't exactly flawless.

All in all, this shareholder fully supports management's decision to forgo profit growth now in an effort to grab market share and roll out new products. That trade-off should fuel strong top-line growth for years to come and create shareholder value in time.