AppFolio Q1 2025 Earnings Brief
Including an Excerpt from Our Investment Memo
Summary
AppFolio (APPF) released their Q1 2025 earnings on April 24th, 2025. While guidance for the full year remained unchanged, results fell short of street expectations on revenue and margins sending the stock down 18.17% to $192.02 per share. For any new readers, in late 2024, we established a ~7% at cost portfolio weight position in AppFolio at $216 per share, based on our belief in its sustainable growth model and increasing profitability.
For a comprehensive analysis of our investment rationale, please refer to our complete investment memo (link below).
Financial Highlights Q1 2025
Revenue grew 16% year-over-year to $218 million.
Core solutions revenue was $49.5 million in the first quarter, a 15% year-over-year increase, driven by more customers choosing Plus and Max plans, winning new customers, and growth in total units under management.
Value-added services grew 16% year over year to $165 million. This increase reflects greater use and adoption of payments, risk mitigation services, and screening, as well as growth in units under management. These drivers were partially offset by the April 2024 reduction in fees associated with certain card-based payments.
Total units under management (the most important KPI) grew 6% year-over-year to 8.8 million from 21,105 customers compared to 8.3 million units from 19,941 customers a year earlier.
GAAP operating income was $34 million, or 15.5% of revenue, compared to operating income of $34 million, or 18.2% of revenue in Q1 2024.
Non-GAAP operating income was $53 million, or 24.3% of revenue, compared to an operating income of $48 million, or 25.7% of revenue, in Q1 2024.
Net cash provided by operating activities was $38 million, or 17.7% of revenue, compared to $43 million, or 22.9% of revenue, in Q1 2024.
Financial Outlook
Based on information available as of April 24, 2025, AppFolio's outlook for fiscal year 2025 remains unchanged:
Full year revenue is expected to be in the range of $920 million to $940 million.
Full year non-GAAP operating margin as a percentage of revenue is expected to be in the range of 24.5% to 26.5%.
Diluted weighted average shares outstanding are expected to be approximately 37 million for the full year.
Our investment memo projected approximately 11% revenue growth for Core Solutions and 21-22% for Value Added Services. Q1 2025 results show Core Solutions growth is exceeding expectations by about 4%. While this is positive, driving Max subscriptions and future Value Added Services potential, our initial optimism for Value Added Services growth appears overstated. This is largely attributed to the April 2024 fee reduction on some card payments. Despite management maintaining their guidance, the 18% stock price decline suggests the market is extrapolating the Q1 Value Added Services trend for the full year, potentially leading some analysts to forecast revenue below $900 million in 2025. The discontinuation of eCheck fee waivers clearly boosted revenue in 2024. As we discussed in our investment memo, we believe analysts are now incorporating this factor tapering off in 2025 into their models, anticipating revenue growth coming in around 16%, which seems to be reflected in the stock's year-to-date performance in 2025.
To understand the impact of potentially lower Value Added Services growth, we conducted a sensitivity analysis, reducing its 2025 growth rate to 16% and adjusting subsequent years accordingly. Even under this more conservative scenario, our model yields an IRR of 15% at our purchase price of $216, which remains a solid return.
Payments Risk
The following is an excerpt from our AppFolio investment memo.
