Instructure (INST) and AppFolio (APPF) Report Q2 Earnings
Instructure (INST) Delivers a “B+”, But Market Giving it an Unjustified “F”
Instructure reported last night and results were modestly ahead of expectations, with revenue up 30% to $50 million (beating by $600K) and EPS of $-0.24 beating by $0.02. Management raised the low end of its full-year guidance by just over half a million, to a range of $205.1 million to $209.5 million. Adjusted EPS guidance for the year improved by a penny, to a range of -$0.93 to -$0.87.
Overall it was a decent quarter with continued market share gains in the academic market (with Canvas) and traction in the corporate learning market (with Bridge). Big Canvas wins (many of which were Blackboard displacements) included Cornell University (22,000 students), Arizona State University (90,000 students), The University of Toronto (80,000 students) and two municipalities in Norway (29,000 students and faculty). Notable Bridge wins included Holiday Retirement (10,000 employees), the State of Missouri (40,000 learners), Cox Automotive, Global Radio, Bacardi MARTINI and Qualtrics. Bridge is still tracking toward 15% to 20% of new bookings.
Management said it will continue to invest in product development, which will likely cut cash balances (that said, Instructure did complete an equity raise recently) but should also help the company better position itself to attract large enterprise customers who want a lot of modules in a corporate learning platform.
On the downside, Q3 guidance was a little lighter than expected at $53.6 million to $54.2 million, versus consensus at $54.4 million. And billings were also about $5 million lighter than expected in Q2, coming in at around $198.5 million. That said, rolling 12-month billings, which strips out quarterly lumpiness, was fine at $214.3 million (up 31%).
If the market for software stocks were as it was during the last two quarterly earnings seasons this report would have been just fine. But in the context of a major tech/software stock selloff this report didn’t get the job done. The magnitude of the “beat” just wasn’t big enough, and with slightly light guidance and quarterly billings shares of Instructure are getting pounded in early trade today (down as much as 20% in the first hour of trading).
I think this is a huge overreaction and that, while I can understand a move back near prior support at 40 in the context of the current market, a drop into the mid-30s is a buying opportunity. This stock was already trading at a discounted valuation to peers. And even if you don’t want to own the stock for the next several months, I see significant potential for shares to pull out of the early-morning nosedive and trade back up above 40 by the close. Or, at least, within the next week. I suspect many traders/programs saw INST break below its 50-day line, support around the 40 level, and the 200-day line, and the market is being swamped with sell orders.
My advice for aggressive investors is to step in and buy. Then, give the stock a few days to show us what it’s made of before we discuss our next move. Near-term downside should be limited at current levels. BUY.
AppFolio (APPF) Delivers, Again
AppFolio reported solid Q2 results last night that beat on both the top and bottom lines. Revenue was up 31.7% to $47.2 million (beating by $1.7 million) while EPS of $0.21 was up by 163% and beat by $0.02. Management also gave full-year revenue guidance above consensus estimates ($183 million), which is now expected to be in the range of $183 million to $185 million (up 27% to 28.7%). Digging deeper, core solution revenue was up 22% while Value+ Services grew by 40%. The property management vertical is still the biggest driver with over 94% of revenue (and growing above 30%), while the Legal services vertical grew at 12.2%. Property management customer count was up 13.8% to 12,317, and average revenue per customer was up 18% to $14,824. Property Manager units were up 22% while Property Manager customers were up 14%, meaning that the size of new customers continues to grow. Legal customer count is up to 10,000, with average revenue per customer at around $1,125.
On the conference call management said it will be continuing to invest for growth, with Value+ Services likely to be the beneficiary. Growth in Value+ Services, including electronic payments, screening services and legal liability insurance, has been strong in recent quarters, so it makes sense to continue investing in that part of the business. As AppFolio gains scale it is able to reduce costs with third-party service providers for Value+ Services, which also has a positive impact on profit margins.
The bottom line here is another good quarter without any visible hiccups, or major developments. The stock still trades at a premium valuation to peers, which suggests near-term upside is somewhat limited. That said, AppFolio is hosting its annual user conference on September 17 – 19 and that event could coincide with some news around new product releases. Shares retreated yesterday along with most other technology stocks but have recouped their losses and spiked to another fresh all-time high early this morning. Continue to Hold. HOLD.