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Could AppFolio's Growth Accelerate in 2021 and Beyond?

By Matthew Frankel, CFP® and Brian Withers - Updated Jun 22, 2021 at 3:25PM

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AppFolio's recent numbers aren't thrilling, but could that change?

AppFolio's (APPF -1.73%) growth rate hasn't been too impressive recently, but there's a big asterisk -- the company exited one of its businesses, so this cost it some of its revenue. In this Fool Live video clip, recorded on June 10, contributors Matt Frankel, CFP, and Brian Withers discuss what investors need to know about this real estate technology company. 

Matt Frankel: This is AppFolio, ticker symbol is APPF. If you are not familiar. They provide cloud-based software programs designed for the real estate industry. There's two big sides to their business. They have what's called the AppFolio Property Management platform. They also have the AppFolio investment management platform. Both of these provide functionality such as being able to communicate with tenants or investors, give the ability to upload data, and looking nice and presentable for your clients or your investors. There's accounting, you can schedule maintenance, you can list vacancies, things like that. This is a business that's been around for a little while. In 2021, they're projecting about $350 million in revenue. That would be about 13% growth year over year. But that growth number's a little bit deceptive because they were in a third business line, they had legal services business that they invested in the little bit deceptive to just call a 13% growth year over year. They divested that business, they're sitting on a bunch of cash. We don't really know what they're planning to do with it yet. One thing to keep in mind, AppFolio's business is profitable, not by a ton, they posted great earnings in 2020, a lot of that was because they divested that one business. They traded about 15 times sales. It's a pretty solid business, but it doesn't really get me too excited. What do you think about AppFolio Brian?

Brian Withers: I've followed this one for a long time and have owned it in the past. If you look at the numbers of their customers, as we got into the coronavirus, I was a little worried about that the company wouldn't be resilient, it's dependent on cash flow of rent and signing up new customers. I want to say the average number of properties for each property manager is above 300, and it's steadily grown over time. Its customers are pretty well established and solid. You're not a mom-and-pop shop if you have, 300 apartments or 300 properties for rent under this kind of arrangement. Certainly, you're likely to have office staff members as well as really take advantage of the software and the complexity of managing a larger business. I think their customers are sticking around. It'll be interesting to see what they do with their cash over the next couple of years.

Brian Withers has no position in any of the stocks mentioned. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AppFolio. The Motley Fool has a disclosure policy.

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