Good afternoon. Thank you for standing by, and welcome to AppFolio, Inc. Q4 2021 Financial Results Conference Call. Please be advised today's conference is being recorded and replay information will be given at the end of the broadcast. I would now like to hand the conference over to Lori Barker, Investor Relations.
Thank you. Good afternoon, everyone. I'm Lori Barker, Investor Relations for AppFolio, and I'd like to thank you for joining us today as we report AppFolio's Q4 and fiscal year 2021 financial results. With me on the call today are Jason Randall, AppFolio's President and Chief Executive Officer, and Fay Sien Goon, AppFolio's Chief Financial Officer. This call is being simultaneously webcast on the investor relations section of our website at www.appfolioinc.com. Before we get started, I would like to remind everyone of AppFolio's safe harbor policy. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections or future market conditions, is a forward-looking statement.
AppFolio's actual future results could differ materially from those expressed in such forward-looking statements for any reasons, including those listed on our SEC filings. AppFolio assumes no obligation to update any such forward-looking statements except as required by law. Please see our filings with the SEC, including our Form 10-K, which was filed earlier today, for greater detail about risks and uncertainties. With that, I will turn the call over to Jason Randall, AppFolio's President and Chief Executive Officer. Jason, please go ahead.
Thank you, Lori, and welcome to everyone joining us for AppFolio's Q4 and fiscal year 2021 financial results. I'm pleased to report that in the Q4 , revenue was up 32% to $95.6 million, capping off a year of 26% revenue growth in our continuing real estate business. Unit expansion per customer shows that our ongoing multi-year strategy and investment in moving upmarket to customers with more complex portfolios and substantial unit count is working. In 2021, we continued our focus on igniting revenue growth by layering in a new organizational strategy structured around our growing customer base. We also increased momentum in our value-added services, especially in payments. For 2022, our team is energized to continue making traction in these areas of ongoing growth.
Against that backdrop, I'd like to start today's call with a short discussion about the state of our industry and how AppFolio is helping our customers. Digital transformation is a requirement for many businesses' success today, and the way we work and live requires powerful solutions to enable this transformation. AppFolio exists to maximize the success of businesses small, medium, and large across the real estate industry, and we are leading customers to the future of how work is done. This continues to give us purpose as we navigate a world and an industry that is undergoing significant change. Our customers and the real estate industry as a whole are experiencing the impacts of a changing labor market. Turnover has increased, and staffing vacant positions takes more time and resources.
In fact, a 2021 survey we conducted in partnership with the National Apartment Association revealed that HR staffing and recruitment is by far the most urgent challenge for property managers, followed by improving operational efficiencies and maximizing revenue and profits. What this means is that our customers are doing more with fewer resources, which makes it imperative for them to automate and standardize their processes and systems.
AppFolio Property Manager provides a powerful platform from which real estate property managers and owner-operators can run their business, from initial tenant screening and onboarding to handling maintenance requests and sending and receiving payments, all while getting actionable business insights that help drive revenue and profits. In recognition of the evolving needs that customers with larger and more complex portfolios have for deeper business insights, automation, and more advanced customer experiences, we continue to invest behind AppFolio Property Manager Plus.
In 2021, we continued our ongoing effort to refine the user experience by reducing the time it takes to complete common workflows and freeing customers to focus on higher-value tasks. We released substantial improvements throughout the year, including a unit turn board that can shorten the length of time from move-out until a unit is ready to be rented, and offline inspections, which allows customers to complete a full unit inspection on a mobile device even when internet connectivity is unreliable. We also introduced loan tracking and accounting automation to enable customers to track existing loans and mortgages to further streamline accounting processes, making it easier for property owners to assess and optimize their debt financing strategy. One of the most powerful ways to save our customers time is to eliminate the need for certain tasks altogether.
For the last few years, we have been applying AI-based automation to streamline manual processes in leasing and accounting. In 2021, we launched our AI-based AppFolio Smart Maintenance service. Smart Maintenance automates the intake, prioritization, and dispatch of maintenance service requests and automatically creates work orders in the process, reducing on-call times for maintenance technicians and reducing the time it takes to resolve issues. Elevation Real Estate and Management uses AppFolio Property Manager to manage a mixed portfolio of 850+ single-family, multi-family, and commercial units throughout Northwest Arkansas. They recently turned to AppFolio Smart Maintenance to help deliver a more robust and user-friendly maintenance solution. Since introducing Smart Maintenance, Elevation reported that they have freed up roughly 60 hours a month to do things that normally get put on the back burner.
Mike Fazio, Elevation's regional manager, shares this quote: "With the time savings, we're able to do things like preventative maintenance, organizing, and cleaning, all the things you normally don't have time to do because you're always chasing down the next maintenance request." End quote. We believe our customer-centric culture and market validation techniques that direct our product strategy are key to our success, and we strive to nurture engaged and long-term customer relationships. An example of our success in this area is Kading Properties, a professional real estate development and property management team serving Central Iowa with roughly 1,800 units currently on our platform. Since adopting AppFolio Property Manager in early 2021, Kading Properties has achieved growth without adding to its leasing staff.
Kading Properties currently uses a number of our value-added services, including screening, insurance, websites, premium leads, smart maintenance, and AppFolio AI Leasing Assistant.
According to the customer, AppFolio has significantly improved Kading Properties' ability to manage cash flow, security, occupancy, lease renewals, rent increases, and overall operations. As we enter 2022 and beyond, we will continue to work on four interrelated elements of our multi-year strategy, all of which focus on serving a broader swath of the real estate market and meeting the complex needs of both SMB and larger customers with mixed real estate portfolios. First, expand our markets. We are leveraging AppFolio's experience in our core SMB market as we add capabilities focused on growing higher unit count customers. We have organized sales, marketing, and customer support into residential and community association property types. At the same time, we have created domain teams to address core capabilities and workflows across those varying customers and property types.
By year-end, we were clearly seeing the impact from the shift in this go-to-market strategy. Going forward, our existing customer base will enable us to continue diversifying the number of property types we serve within our customer portfolios, eventually touching almost every aspect of modern real estate operations. At the end of 2021, we had approximately 17,200 customers and 6.35 million property management units on our platform. This is a key metric for us. We help thousands of customers serve millions of residents every day. Second, expand our average revenue per unit and grow customer retention by adding and expanding value-added services. For several years, we've been investing in value-added services, including payments, screening, and insurance.
All of these are designed to enhance, automate, and streamline processes and workflows that are essential to our customers' business and to enable AppFolio to increase our attach rate per unit. Looking ahead, we will continue our value-added services investment and are working to expand our use of key partnerships and integrations. Third, make our products easier to use. Our software delivers efficiency gains by automating workflows to free staff and increase productivity. As part of this strategy, we will continue to invest in AI as a transformational technology to address real-world real estate industry problems by enabling AppFolio customers to act with greater speed, understand performance with more accuracy, and bring more consistency to their operations, all of which we believe will ultimately improve our customers' business.
Fourth, continue to modernize and streamline our onboarding processes to ensure that our customers are well-prepared to run their business on our platform. AppFolio onboarding includes a dedicated team that goes above and beyond to help customers realize value from our solutions. After we assist with data migration, we are able to provide valuable insights into data integrity and work with our customers to help improve their underlying business processes. Our team can share insights on best practices, and we dedicate resources to guide our customers through the adoption and utilization of our value-added services. All four elements of our multi-year strategy focus on serving a broader swath of the real estate market and meeting the complex needs of both SMB and larger customers with mixed real estate portfolios.
These investments support our ultimate goal to make our customers' businesses and lives better.
As I have mentioned in previous calls, we believe our people are at the heart of our success and our customer success, and we continue to make investments in growing and developing our team. Throughout 2021, and even more recently, we've invested significant resources to develop the talent needed to remain at the forefront of innovation and make us an employer of choice. We've also brought in new external leadership from such market-leading companies as Salesforce, C3.ai, and RingCentral to name a few, to lead our product sales and engineering organizations. All of this focus has led to the recognition that demonstrates our value, company culture, and workplace. Fortune recognized AppFolio as a great place to work for women in 2021, and the Glassdoor Employees' Choice Awards listed AppFolio as one of the best places to work in 2022.
In summary, I'm pleased with our results in the Q4 , and we will continue to invest in the key foundations of our success, our customers, our innovative products and services, our employees, and our revenue-generating go-to-market strategy. I will now turn the call over to Fay Sien Goon for more detail on AppFolio's financial results.
Thank you, Jason. On the call today, to enhance comparability, I will discuss the results of our continuing real estate business, excluding the impact of our former MyCase business, which we divested in the Q3 of 2020. We are pleased with our strong Q4 revenue growth rate of 32% year-over-year or $95.6 million. For the full year 2021, revenue from our continuing real estate business grew 26% to $359 million. This increase is primarily due to growth in our usage-based value-added services, which are designed to enhance, automate, and streamline processes and workflows that are essential to our customers' businesses. Also, our revenue grew due to increasing unit counts and growth in the number of property management customers we serve.
The migration of customers to AppFolio Property Manager Plus is an excellent example of our land and expand strategy as we continue to drive increased revenue from existing customers who realize the value in our products. Core solutions revenue, which are revenues derived from subscriptions to customers based on units on our platform, was $29 million in Q4, representing an increase of 26% year-over-year. Full year core solutions revenue from our continuing real estate business grew 22%. At the end of the Q4 , we managed 6.35 million property management units compared to 5.36 million a year earlier. This represents an 18% increase in the average annual property management units under management. The growth rate in the number of property management units is a key performance metric that drives how we manage our revenue growth.
Residential units continue to be the largest part of our business. Community associations have also contributed nicely this year to our unit count. In addition to the number of units we serve, it is important to note that core revenue also grew as we continue to support customers with larger unit portfolios and drive higher adoption rates of AppFolio Property Manager Plus. Additionally, the focus on our sales, marketing, and customer support efforts is showing good traction. With regard to value-added services Q4 revenue, we experienced a strong 39% year-over-year growth to $63.8 million, and our full year value-added services grew 31%. Again, this is revenue from our continuing operations.
This year-over-year increase is due not only to the increase in property management units under management but also increased adoption and utilization for our electronic payment services, tenant screening, and insurance service offerings.
Tenants and property managers continue to take advantage of these services as more business is being transacted online relative to last year. The sequential quarterly decrease in value-added services of 3% is primarily due to the seasonality in our tenant screening business, which generally experiences declines in the Q4 when lower leasing activities typically occur, thereby reducing the demand for screening services. Gross margin, excluding stock compensation, was 59.6%, consistent with the Q4 of last year. Annual 2021 gross margin from continuing operations, excluding stock compensation, was down about 140 basis points as our product mix shifted due to the higher annual growth rate of value-added services revenue. Now turning to spending.
Our year-over-year increase in operating expenses for Q4 and full year 2021 are primarily related to additional headcount needed to fuel our growth, additional marketing spend, and an increase in third-party cost of revenues in line with the increase in relevant value-added services revenue. Also, as many businesses are experiencing, the cost associated with hiring and retaining talent continues to increase more than in prior years, particularly in specialized areas such as R&D. We are targeting annual 2022 revenue of $447 million-$457 million. The midpoint of the range represents a full year growth rate of 26%. In terms of seasonality, in a typical Q2 , tenant applications increase, and our property managers then experience new tenant expansion in the Q3 . This results in higher demand for our insurance services in the Q3 .
As we mentioned earlier, we have typically seen a sequential decline in revenue in the Q4 with tenant screening reductions due to seasonality, lower leasing activities. We expect the cost of revenues exclusive of depreciation and amortization for 2022 to increase slightly as a percentage of revenue due to changing product mix. Value-added services revenues are increasing faster than total revenues, and we forecast an increase in expenditures to third-party service providers. Although our year-over-year percentage increase in headcount will be a little more moderate in 2022, the cost of attracting and retaining talent are expected to continue increasing at or above inflation rates. Therefore, we expect some growth in operating expenses.
As our new Chief Financial Officer, I'm looking forward to working with Jason and the leadership team as we focus on growing profitability and building a scalable long-term growth model.
I'm glad to have joined AppFolio during this exciting growth phase. Our focus in 2022 is on growing the number of units under management, moving upmarket, and providing our thousands of customers with an exceptional customer experience and dynamic technology for managing millions of units. Thank you all for joining us today.
This concludes today's call. We thank you for joining. You may now disconnect your lines.