Earnings Updates: Everbridge (EVBG) and AppFolio (APPF)
Everbridge (EVBG) reported after the bell yesterday. It might have been its best quarter yet as a public company. Revenue was up 37% (versus expectations of up 32.5%) and EPS of -$0.02 beat by $0.04. Even better, guidance was raised more than the beat, and management now expects 2017 revenue growth of 35% (versus 30.5%).
Notable things from the quarter included solid momentum selling non-mass notification products (shows ability to introduce new solutions, which grows the addressable market), larger deal sizes (more than 10 deals valued over $100,000), and a 16% increase in new customers. Management talked at some length about how it has only landed a handful of sizeable state/district deals (New York, Florida, Washington DC), and now it should be much easier for others to jump on the bandwagon. It also discussed how market demand is growing given the number of unfortunate events in recent months. Analysts on that call seemed genuinely surprised at the uptick in business momentum. There were several that kept rephrasing the basic question, “What’s changed that’s caused growth to accelerate?” Management was pretty straightforward, saying it’s just a matter of having the right products to meet the market’s needs, and that’s attracting state, local, federal and private-sector interest. It also pointed out that it’s really only three deep into the state market, and when you add large counties, states and cities to the list, there are roughly 200 sizeable opportunities out there.
Shares popped early, and have come down a little as it’s not the strongest day in the market. I’ve seen price target hikes for Everbridge, and I suspect the stock will get moving higher, provided the broad market doesn’t deteriorate. Last Friday, I moved the stock to Buy, saying, “I think big investors are just waiting for confirmation of a good quarter and bright outlook before digging in deeper. Don’t go in too heavy, but you can pick up a few shares ahead of earnings if you’re game.” That looks to be the right call, and I’m sticking with a Buy rating. BUY.
AppFolio (APPF) also reported a beat-and-raise quarter, but you wouldn’t know it by the direction of the stock today (down 7%). Revenue was up 34.6% to $37.9 million (beating by $1.6 million) and EPS of $0.10 beat by $0.03 as gross margins of 63.4% were roughly 3% better than expected. Management also provided full-year 2017 guidance of $141.5 million, which represents growth of 33%. Based on the trajectory, it should beat EPS expectations of $0.31. Take note! Last year it lost $0.12, so clearly this company is doing something right and leverage in the business model is kicking.
Other notables from the call: Property manager customers rose by 17%, units under management were up by 22% (read through is that AppFolio is landing bigger clients), and value plus services revenue was up 39% as property managers used more screening services and electronic payments. The property management business is still the main attraction here (remember there is a legal platform as well) as it accounts for over 90% of revenue. Management did mention that Q4 is typically slower given that not many people move into new housing around the holidays.
So, what’s going on with the stock? This is just speculation, but it looks to me like one (or more) institutional investors are reducing their positions. The selling has been relatively steady, without any huge volume days since shares began to decline in the second week of October. It’s had a great run, and it wouldn’t be surprising for a few investors to want to take some money off the table. Does that mean we should too? I’m not convinced.
Analysts have been slow to get behind AppFolio, and I suspect there is some pencil sharpening going on right now. It wouldn’t surprise me in the least if we saw a wave of upgrades given the improving margins and profits, as well as steady revenue growth. Also, given that AppFolio is tapping into larger clients, it appears that its products are hitting the mark (possibly better than the competition’s?).
The stock has pulled back around 18% from its 52-week high and has recently broken its 50-day moving average line. There could be some more downside, but I’ll be very surprised if it gets too much worse. This looks to me to be a buying opportunity, and downside can be limited by setting an appropriate stop loss (down 10%, 20%, or whatever you want. It’s a slightly aggressive call, but I’m moving back to Buy. And I’ll keep a close eye on it in case shares remain under pressure. BUY.
Three More Earnings Reports Tonight!
Speaking of selling pressure, we have a trio of companies reporting tonight that have been painful to hold on to. They are Primo Water (PRMW), BioTelemetry (BEAT) and Tactile Medical (TCMD). I know a lot of you are wondering what’s going on with these stocks. Well, the wait is almost over. I’ll have details for you in the morning once I get the results and listen to the earnings calls.