Why AppFolio Is Sinking Today

Brian Feroldi, The Motley Fool
Updated
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In this article:

What happened

Shares of AppFolio (NASDAQ: APPF), a provider of cloud-based software used in niche business segments, fell about 11% as of 10:50 a.m. EDT on Tuesday. The decline is attributable to the release of third-quarter results.

So what

Here's a review of the key numbers from the earnings report:

  • Revenue grew 32% to $50.1 million. The gain was driven by 22% growth in subscription revenue and 42% growth in Value+ services revenue.

  • GAAP net income grew 49% to $5.5 million. GAAP EPS increased 60% to $0.16 per share.

  • Non-GAAP EPS -- which adjusted for stock-based compensation -- came in at $0.20 per share. That was a penny shy of the $0.21 that analysts were expecting.

  • The company purchased a company called WegoWise during the quarter for $14.4 million. This software company helps property managers save money on their utility bills.

  • Management raised its full-year revenue guidance for the third time this year. The company now expects revenue to land between $187 million and $188 million. That range is a $3.5 million increase at the midpoint over its prior outlook and represents year-over-year growth of about 30%. For context, Wall Street was only expecting $185.6 million in revenue for the year.

ARrow pointing up and down with question mark
ARrow pointing up and down with question mark

Image source: Getty Images.

Despite sharing good-looking absolute numbers and favorable guidance, traders appear to be laser-focused on the small miss in non-GAAP EPS.

Now what

The recent marketwide sell-off has thrashed AppFolio's stock, which makes sense given that this company is trading at a premium valuation. However, even after including today's drop, shares are still up more than 28% since the start of the year, so bulls are still having a prosperous 2018.

AppFolio's numbers continue to prove that the company is having a lot of success with penetrating its core markets. With new services on the way and plenty of runway ahead of this business, this bull thinks that today's drop represents a prime opportunity for forward-thinking investors to get in.

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Brian Feroldi owns shares of AppFolio. The Motley Fool owns shares of AppFolio. The Motley Fool has a disclosure policy.

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