AppFolio stock target raised to $264 on pricing power

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On Monday, KeyBanc has increased its price target for AppFolio (NASDAQ:) shares to $264 from $254, while keeping an Overweight rating on the stock. The adjustment follows AppFolio’s announcement of a subscription price hike of 5-7% for all service tiers except its Max offering. The increase is perceived as a strategic move to encourage customers to upgrade to the Max tier.

KeyBanc’s stance is based on the belief that AppFolio is leveraging its pricing power to drive average revenue per user (ARPU) growth. Despite the price change being factored into the company’s 2024 guidance, the analyst anticipates that the potential for customers to move to the higher-tier Max service could still lead to a modest upside. The expected impact of the price increase on AppFolio’s financials is estimated to be a 0.25-0.5% tailwind.

The company’s decision to adjust subscription fees comes after the initial introduction of a new ACH fee, which was the first part of its pricing strategy update. The latest move is seen as a continuation of AppFolio’s efforts to optimize its revenue through pricing adjustments.

AppFolio’s strategy is aimed at not only increasing the subscription costs but also at incentivizing clients to consider the premium Max tier, which remains unaffected by the price rise. This tiering strategy could potentially lead to an enhanced ARPU, supporting KeyBanc’s thesis.

Overall, the analyst’s comments reflect confidence in AppFolio’s ability to expand its ARPU through strategic pricing, which is expected to contribute positively to the company’s financial performance. The new price target of $264 reflects this optimistic outlook for the software company’s stock.

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