AppFolio (NASDAQ:APPF), a software-as-a-service business that focuses on the real estate and legal markets, reported its second-quarter results on Monday. 

The headline numbers looked solid; revenue grew 35% to $63.6 million, which is consistent with the pace of growth we saw last quarter. GAAP net income more than tripled, but the impressive bottom-line performance is misleading because it is mostly attributable to a tax gain. Equally as important is that AppFolio has introduced several new services to market that management believes will position the company well for sustained growth from here.

AppFolio Q2 results: The raw numbers


Q2 2019

Q2 2018

Change (YOY)


$63.6 million

$47.2 million


GAAP net income

$23.2 million

$7.5 million


GAAP earnings per share 




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

What happened with AppFolio this quarter

  • Core solutions, which is subscription-based revenue, grew 27% to $21.6 million.
  • Value+ services, which is fee-based revenue earned from optional services, grew 36% to $39.1 million. Management stated that growth was due to increased use of all of its Value+ services as well as the introduction of new ones.
  • Wall Street was predicting $63.7 million in total revenue for the quarter, so the top-line result came in a hair behind expectations
  • Operating expenses continue to grow fast, rising 53% during the quarter. The outsized jump is mostly attributable to employee additions.
  • The huge growth in net income is almost completely attributable to a $21 million tax benefit. Income before taxes actually fell 75% to $1.8 million.
  • Market watchers were only expecting $0.11 in EPS, so the actual result was much better than expected. 
  • Cash balance at quarter-end was $43 million. Total debt was $49.4 million.
  • Property manager customers grew 12% to 13,737, which represents a small sequential acceleration. Total property management units under management now stand at 4.23 million. 
  • Legal customers grew 6% to 10,631.
Couple win laptop on their lap looking at a house outline

Image source: Getty Images.

What management had to say

CEO Jason Randall likes to let the numbers do the talking, but on the call with investors, he expressed his enthusiasm for a new Value+ product that was launched during the quarter:

During the second quarter, we released a new value+ service LISA, AppFolio's AI Leasing Assistant, which we've built leveraging technology from our recent acquisition of Dynasty. We designed AppFolio AI Leasing Assistant to address key challenges faced by property management companies, stemming from a high volume of rental inquiries that make it challenging to follow-up on every lead in a timely fashion, which may result in missed revenue, poor customer experience, and longer vacancy times. The AppFolio AI Leasing Assistant works 24/7 as part of our properties' leasing team to provide thoughtful, personable responses via text messages and email.

Check out the latest earnings call transcript for AppFolio.

Looking forward

CFO Ida Kane took some time on the call to remind investors of AppFolio's other recently launched products:

  • AppFolio Property Manager PLUS, which services "larger, more complex real estate property manager customers."
  • AppFolio Investment Management, which serves real estate investment managers.
  • AppFolio Utility Management, which provides analytics tools for property managers to help them boost efficiency and automate utility bill processing.

When combined with its new AI tool LISA and the good second-quarter results, Kane favorably tweaked the company's full-year revenue guidance. Management now sees revenue landing between $253 million and $255 million, which represents a $3 million boost to the lower end of the range.

AppFolio's stock sold off by a few percentages points in after-hours trading following the earnings release. The decline is probably attributable to the small miss on the top line and the fact that all of the bottom-line growth was driven by a tax gain. It's also worth remembering that shares have gone on a run over the last year, and the company's stock is trading at a very high multiple, which tends to amp up volatility around earnings. 

The good news for investors is that AppFolio has a lot of irons in the fire that should drive its next phase of growth. All of its new services are designed to meet the needs of larger property managers, which opens up a brand-new market potential for the businesses. It's also likely that many of the company's existing clients will also find its new tools to be useful, which could drive rapid adoption.

CEO Randall ended his prepared remarks on the call with investors by restating his belief that the company is well-positioned for continued success:

[W]e remain focused on executing our long-term strategy of sustainable growth, while delivering exceptional customer experiences, leading technology and unsurpassed customer service.

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