Incremental revenue is dropping straight to the bottom line.
Shares of property management software company AppFolio (APPF 10.55%) soared on Friday after the company reported double-digit growth for the third quarter of 2024 as well as strong profitability. As of 12:30 p.m. ET, AppFolio stock was up 12%.
Operating leverage with scale
In Q3, AppFolio generated revenue of $206 million, which was a 24% year-over-year increase. The company helps property owners manage their portfolios and consequently benefits from more rental units using its services. It ended Q3 with 8.5 million units, which was up 9%.
AppFolio kept its expenses under control as revenue soared. The company consequently had an operating margin of almost 21% in Q3 compared with operating losses in the same quarter of last year. This is an extremely welcome development.
It’s good news looking forward, too. AppFolio raised its full-year revenue guidance today. Management says it will generate revenue of $786 million to $780 million this year compared with previous guidance of $772 million to $778 million. This higher revenue will result in higher profits, which largely explains investors’ optimism today.
AppFolio is quietly putting up good numbers
AppFolio has demonstrated steady growth since going public in 2015. I’m not sure how much growth it has in front of it but even retaining what it has right now is a good little business. The company’s expenses are modest, which allowed it to build a strong, debt-free balance. And it continues to generate substantial free cash flow — $56 million in Q3 alone.
AppFolio is the kind of business that can quietly compound shareholder value over the long haul. If I were a shareholder, I’d be encouraged with Q3 results and I would see good reason to keep patiently holding even after today’s gains.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppFolio. The Motley Fool has a disclosure policy.