AppFolio: 2Q25 Business Update
Successfully Upselling, Leading in Innovation, Growth Reaccelerates
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AppFolio is a leading vertical market software provider for property managers with a focus on the small to middle market, however they been pushing up market recently. Their software product is very sticky and they are constantly adding more functionality to it, which has allowed them to upsell customers. They charge property managers on a per unit basis and currently have 8.9 million units on their platform. On average, they generate $8 is revenue per unit per month. For more background, see our report here.
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2Q25 Update.
AppFolio reported 2Q25 and the stock is up +16%. (It is now up 55% since we published our original research report in May, so we will update the valuation below).
Revenues reaccelerated 300bps to +19% y/y. CEO Shane Trigg attributed the strong performance to “new business wins, customers moving to premium tiers and increased adoption of our value-added services.”
Core Services also grew +19% y/y with units under management growing ~100k q/q to 8.9mn. Total customers were up +6% y/y to 21,403. As they emphasize larger property managers, we may start to see unit growth outpace customers, although that hasn’t happened yet.
Value Added services also grew +19% to $180mn as they saw growth in adoption of tenant screening tools, risk mitigation services, and payments. They called out the FolioScreen Trusted Renter, a tool that combines fraud detection with fair housing compliance, as being a particularly strong driver in the quarter.
Their strong revenue growth led them to increase guidance for the year to $935-945mn from $920-940mn.
GAAP operating margin was 17%, down 110bps y/y. This margin compression was driven by higher S&M as % of revenue (15.6% vs 13.8% in 2Q24) as they “invest to win business”. G&A as a % of revenue fell 100bps, slightly offsetting the S&M increase.
They don’t take questions on the earnings call, so there is limited incremental info, but they did emphasize AI and the Stack Marketplace several times.
Realm-X, what they call their suite of AI-powered software solutions, was a big topic on the call. They’ve announced several new features including the ability to use AI agents to delegate workflow. One example is having “Realm-X Maintenance Performer” talk to residents about building issues to troubleshoot quicker and see when they would need to loop in maintenance. Realm-X can also help collect rent, which they noted can increase collections by 56%. Since the beginning of 2025 96% of users have utilized one or more AI-features. These are real time-savers for property managers, which saves them money and improves operational efficiency.
In this AlphaSense expert call, the Global Director of Technology at Cushman & Wakefield (who manages over >180k units) noted that AppFolio is in the lead with AI and he doesn’t expect others to be able to innovate as quick.
Since AppFolio was founded in 2006, they were web-based software and thus had much less “tech debt” than competitors. Yardi, one of the most dominant players in the property management software space (particularly amongst large property managers), was founded in 1984. While they still roll out new features and founder Anant Yardi can marshal resources to push through initiatives, they have significant tech debt and struggle to innovate as quickly as AppFolio. (It is a bit like Yardi is Windows and AppFolio is Apple in that Yardi is ‘good enough’ and usually cheaper, but AppFolio is generally considered a better product. Additionally, Yardi tends to copy AppFolio.)
This will be a big unlock for AppFolio and it is still early innings. This could be a long-secular tailwind much the same way hosting in the cloud was clearly superior to housing on-prem servers, but it still took many decades for businesses to start to switch over. As CEO of Amazon Andy Jassy noted, “remember that 85% to 90% of worldwide IT spend is still on-premises versus in the cloud”… and that was on the most recent earnings call (2Q25).
If AppFolio can continue to build a lead in AI-enhanced products and peers fall behind, eventually it can be a reason for property managers to switch over. However, there are still significant hurdles to getting a property manager to switch over. (See our extensive research report for more).
As they noted on the call, upgrades to the Plus and Max plans, which cater to larger property managers, has been boosting revenues. While the Max plan is relatively new (only available since the beginning of 2024), they still face headwinds getting large property managers to switch over. While they originally defined the SMB market (where their initial focus was) as managers with anywhere from 20 to 3k units, most of their managers are towards the low end. Their average units per customer is 415 right now (up from 267 units per customer in 2015). Max was designed to cater to managers with over ~1,500. As the expert points out below, going beyond 750 with AppFolio becomes a challenge.
Part of the problem is that many large property managers already have software providers that they are pretty entrenched with. Even when they do replace it though, they tend to prefer Yardi because it has more granular financing capabilities. In the same call the expert noted that: “AppFolio… is not for accountants, it's much more for your average everyday user. It's just the way the finance system is built.” This seems to be holding them back among the larger more complex property managers who need more complex finance capabilities.
He continues below, talking about the decision of when to go with AppFolio versus Yardi. (It’s worth noting that Real Page’s Buildium, MRI and Entrata all seem to be secondary considerations. We go in-depth into these competitors in our report).
AppFolio’s Max offering is still new, and they have a history of improving their products quickly, so it isn’t beyond the realm of possibility that this opinion changes in a couple of years. Though, there is also the fact that Yardi is cheaper. Although from this interview we got the impression that that was only a secondary consideration. In short, it seems like AppFolio can chip away at this market—and they already have. On the call Shane Trigg noted that Northwest Asset Management, who manages over 8k units, switched to AppFolio. (While, the cynical reading is that it was called out because of how rare a large win like that is, they still clearly have potential to win more share here.)
The next other big product differentiator that is helping win over clients is their Stack Marketplace. This is a feature that allows seamless integration into a variety of software apps. They currently have over 80 partners. 77% of their Plus and Max plans have adopted Stack, which is important because the more they utilize AppFolio as a platform for all of their property management needs, the less likely they are to ever churn and the more pricing power AppFolio will build overtime.
Below the expert noted their ability to integrate 3rd party apps is far superior to Yardi.
3rd party apps can also help AppFolio win over clients by relying on outside software to complete functionality that they haven’t built out yet.
Zooming out, AppFolio is executing very well and continues to out innovate peers. However, at today’s valuation it is possible that a lot of perfection is already priced in. Below we look at our Reverse DCF to better understand what assumptions an investor needs to make in order generate various returns.
Valuation.
At a stock price of $320, AppFolio is now valued at a market cap of $11.6bn. Looking at the midpoint of their 2025 guidance, that puts them at a 12.3x revenue multiple (up from ~8x when we last published a valuation in May 2025).
If you apply a mature margin framework...
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The point about AppFolio's tech debt advantage versus Yardi is spot on. I've seen this play out in other legacy software markets where the newer player can just move faster on product development. What's intresting about the Stack Marketplace is that it kind of acts as a hedge against any functionality gaps AppFolio might have. If a large property manager needs some specific feature that AppFolio hasn't built yet, they can just plug in a third party app through the markeplace. That's pretty clever product strategy. The Realm-X AI features seem legit too, especially the automated rent collection stuff. 56% increase in collections is a massive ROI for property managers. My one concern is whether the margin compression from higher S&M spend continues as they push upmarket. Larger customers probably need more hand holding and longer sales cycles than the SMB cusomers they're used to.