DA Davidson Downgrades AppFolio After Third Quarter Of Disappointing EBITDA Performance

While AppFolio Inc’s APPF shares have appreciated significantly year-to-date, the company reported its third quarter of “growing negative variances” from projections and estimates have been lowered again, according to D.A. Davidson.

The Analyst

Peter Heckmann downgraded AppFolio from Neutral to Underperform and maintained a $77 price target. 

The Thesis

AppFolio reported its second-quarter adjusted EBITDA short of expectations on Monday.

Although the company appears well-positioned to continue generating healthy revenue growth, the profit forecasts have been reduced to reflect elevated investments in new solutions and margin pressure from acquired operations, Heckmann said in a Tuesday downgrade note. (See his track record here.) 

AppFolio reported total second-quarter revenue of $64 million, representing 35% growth and coming in as expected, the analyst said. 

Although the SaaS company had indicated higher investment expenses and the dilutive impact of past acquisitions, the margin pressure continues to be higher than anticipated, he said. 

AppFolio narrowed its 2019 guidance range for annual revenue from $250-$255 million to $253-$255 million, representing 33-34% growth, Heckmann said. 

Over the past three quarters, the company has been missing profit expectations by an increasingly wider margin as it ramps investments, the analyst said. 

“While we believe management has a long-term plan to ramp profit margins, they have not articulated any aspirational targets for margins in the intermediate or long-term.”

D.A. Davidson reduced the adjusted EBITDA estimate for AppFolio in 2019 and 2020 by 16% to $37 million and by 8% to $59 million, respectively.

Price Action

AppFolio was down 7.62% at $95.32 at the time of publication Tuesday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For July 30, 2019

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