AppFolio

AppFolio’s Earnings Slump Highlights the Less Upbeat Side of PropTech

The PropTech industry has been surrounded by a narrative of growth and success. But with thousands of operators running the gamut from property management platforms to AI-enabled investment tools, there’s no room for everyone to report winning numbers all the time.

One such property management platform, and a particularly large, publicly-traded player, is AppFolio, an application that includes tools and dashboards for things like accounting, leasing, and maintenance.  AppFolio’s case is unique for a few reasons, and a recently-released Q1 2019 earnings call paints a picture of a company failing to hit its growth targets for the year. Analysts had forecasted earnings of $.17 per share, but the tech provider only achieved $.11 per share figures despite higher revenue.

A big reason for the profitability drop is several investments, most notably AppFolio’s August 2018 acquisition of WegoWise, a utility benchmarking tool. According to the earnings call, “the WegoWise platform empowers building owners and third-party property managers to better manage operating and capital expenditures relating to utilities.” But that improvement has yet to pay off for AppFolio.

Another challenge AppFolio is facing is the firm’s resistance to offering outside integrations, instead focusing on building a proprietary universe of tools of their own. The earnings call also explained that “the new AppFolio utility management Value+ service is a fully integrated offering that provides enhanced functionality to our real estate customers for utility analytics, billing efficiency and management.”

However, the PropTech world puts a high emphasis on system integrations. They’re critical for sharing data between platforms, and the ability for different applications to “talk” to each other opens up doors to streamline operations, cut costs, and improve efficiency. It is a lot more effective, for instance, when your building smart sensor manager can automatically push data to your facilities management platform than if you were to need to upload the information yourself manually. The other major PropTech company that notably eschews integrations is CoStar, the commercial real estate data provider. However, CoStar has a virtual monopoly on their market while AppFolio operates in a highly fragmented market with plenty of other major players such as Yardi and Buildium. Companies operating in such diverse markets can get away with a lot less.

If AppFolio’s poor earning trends continue, it could mean the company is in trouble. But if its investments end up paying off as the firm hopes, AppFolio’s fortunes could very quickly change course back to that upbeat industry projection we’re familiar with.

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