Nextdoor (KIND) - 2024 Q3 - Quarterly Results

Letter from the CEO The CEO highlights solid Q3 progress with growth in WAU and revenue, improved adjusted EBITDA margins, raised full-year guidance, and advances in the 'NEXT' initiative for user experience transformation CEO's Overview of Q3 Performance and Strategy The CEO highlights solid progress in Q3, with growth in weekly active users (WAU) and revenue, leading to improved adjusted EBITDA margins and raised full-year guidance. The company is focused on a "Founder's Mentality" culture and is advancing its 'NEXT' initiative to transform the user experience by expanding from intent-based uses to discovery-centric content, with significant product progress expected by mid-2025 - Drove growth in both weekly active users and revenue, leading to improved advertiser retention and spending[2] - Adjusted EBITDA margin improved meaningfully in Q3, prompting the company to raise its full-year 2024 revenue and adjusted EBITDA guidance[2] - The company is strategically expanding from 'intent-centric' use cases (e.g., finding a plumber) to 'discovery-centric' use cases to encourage more frequent user visits[4] - The 'NEXT' initiative aims to create a better user experience to drive profitable growth. The timeline is unchanged, with meaningful product-related progress not expected until mid-2025[5] Q3 2024 Financial & Operational Highlights Nextdoor reported strong Q3 2024 results, with revenue up 17% to $66 million, WAU growing 13% to 45.9 million, and adjusted EBITDA margin significantly improving to a near break-even loss of $1 million Key Performance Metrics In Q3 2024, Nextdoor demonstrated strong growth with revenue increasing 17% YoY to $66 million and Weekly Active Users (WAU) growing 13% YoY to 45.9 million. The company also achieved a significant 33 percentage point improvement in adjusted EBITDA margin, resulting in an adjusted EBITDA loss of only $1 million Quarterly Revenue Trend ($M) | Quarter | Revenue ($M) | YoY Growth | | :--- | :--- | :--- | | Q3'23 | $56 | 4% | | Q4'23 | $56 | 4% | | Q1'24 | $53 | 7% | | Q2'24 | $63 | 11% | | Q3'24 | $66 | 17% | Quarterly Weekly Active Users (WAU) Trend (M) | Quarter | WAU (M) | YoY Growth | | :--- | :--- | :--- | | Q3'23 | 40.4 | 2% | | Q4'23 | 41.8 | 5% | | Q1'24 | 43.4 | 6% | | Q2'24 | 45.1 | 8% | | Q3'24 | 45.9 | 13% | Quarterly Profitability Trend ($M) | Quarter | Net Loss ($M) | Net Loss Margin | Adj. EBITDA ($M) | Adj. EBITDA Margin | | :--- | :--- | :--- | :--- | :--- | | Q3'23 | ($38) | (68%) | ($20) | (35%) | | Q4'23 | ($43) | (73%) | ($14) | (25%) | | Q1'24 | ($41) | (68%) | ($14) | (26%) | | Q2'24 | ($28) | (53%) | ($6) | (9%) | | Q3'24 | ($15) | (23%) | ($1) | (2%) | Detailed Q3 Performance Analysis Nextdoor's Q3 performance was driven by 13% WAU growth from re-engagement and ML-driven improvements, a 17% revenue increase from improved ad platform performance, and a 33 percentage point adjusted EBITDA margin improvement due to cost discipline and efficiency User Growth and Engagement Q3 Weekly Active Users (WAU) grew 13% year-over-year to 45.9 million. This growth was driven by successful re-engagement of inactive users, machine learning-driven feed improvements, sustained organic acquisition, and timely content during weather events like Hurricane Beryl - WAU reached 45.9M, up 13% YoY[15] - Key growth drivers included re-engaging inactive users, ML-driven feed personalization, and sustained organic user acquisition[15] - Significant weather events, such as Hurricane Beryl and the California heat wave, provided an added boost to user engagement during the quarter[16] Advertising Platform Performance The Nextdoor Ads Platform drove a 17% YoY revenue increase to $66 million, fueled by better advertiser performance and ease of use. Growth was strong in the self-serve mid-market channel, and managed enterprise advertisers returned to year-over-year spending growth. Additionally, monetizing search activity is emerging as a significant contributor, with retargeting campaigns showing over 10x higher ROAS - Revenue reached $66M, a 17% YoY increase, driven by the Nextdoor Ads Platform's improved performance, demonstrated by higher click-through rates and lower cost-per-click[17] - Self-serve revenue growth was primarily weighted toward mid-market advertisers, which saw strong account and revenue growth[18] - Managed advertisers, including enterprise and large mid-market customers, increased their spend year-over-year in Q3[19] - Search monetization is showing strong potential, with recent campaigns retargeting users based on search history achieving an over 10x higher return on ad spend (ROAS) compared to traditional campaigns[20] Margin Improvement and Capital Allocation The company achieved a 33 percentage point year-over-year improvement in adjusted EBITDA to ($1M), driven by revenue growth and cost discipline. Employee productivity, measured by revenue per employee, improved by over 60% YoY. The company maintains a strong balance sheet with $425 million in cash and no debt, and it actively repurchased 8 million shares in Q3 - Q3 adjusted EBITDA was ($1M), a 33 percentage point YoY improvement, driven by increasing revenue, lower personnel costs, and efficient scaling of hosting expenses[21] - Revenue per employee improved by more than 60% year-over-year, reflecting a focus on both growth and operating efficiency[22] - The company ended Q3 with $425M in cash, cash equivalents, and marketable securities, with zero debt[24] - During Q3, 8 million shares were repurchased at an average price of $2.64. Year-to-date, 30 million shares have been repurchased, representing 8% of basic shares outstanding[24] Product and Advertiser Updates Nextdoor is enhancing its product experience by integrating more relevant local content and improving advertiser ROI through tools like Click Optimization and Conversion API, leading to increased engagement and spending Product Experience Enhancements As part of the NEXT initiative, Nextdoor is focused on improving the product by introducing more relevant local content to drive deeper user engagement. The platform continues to demonstrate its value for users, particularly those undergoing life changes like moving, with 80% using Nextdoor to settle into new neighborhoods. It also serves as a key resource for local businesses, with 50% of home improvement professionals securing jobs through leads from the platform - A key priority of the NEXT initiative is to bring more relevant local content to Nextdoor to make the user experience more compelling[25] - For users who are moving, 25% used Nextdoor for needs like finding movers, and 80% used it to help get settled into their new neighborhoods[29] - For local businesses, 50% of home improvement professionals on the platform secured jobs through leads found on Nextdoor in the last three months[29] Advertiser Experience and ROI Improvements Nextdoor is improving the advertiser experience, leading to increased spending. The self-serve channel saw significant gains, with net revenue retention for mid-market advertisers improving YoY and the average spend of new advertisers more than doubling. Key tools like Click Optimization and the Conversion API (CAPI) are driving better ROI, with click-optimized campaigns seeing an 82% increase in click-through rates - In the self-serve channel, click optimization drove a 2x improvement in advertiser performance and contributed to over half of mid-market self-serve revenue in Q3[27] - The average spend of new mid-market self-serve advertisers more than doubled year-over-year[27] - Advertisers using click optimization saw an 82% increase in click-through rates and a 16% decrease in cost-per-click compared to non-optimized campaigns[28] - The Conversion API (CAPI) is being scaled to help advertisers track ROAS, optimize campaigns, and improve targeting, which is expected to lead to higher spending and better retention[28] Financial Outlook Nextdoor has raised its full-year 2024 guidance, projecting $245 million in revenue and a significant improvement in adjusted EBITDA margin, while anticipating positive free cash flow in Q4 2024 Full Year 2024 Guidance Nextdoor has raised its full-year 2024 guidance. The company now expects revenue of $245 million, which implies 12% year-over-year growth, and an adjusted EBITDA margin improvement approaching 25 percentage points year-over-year FY 2024 Financial Outlook | Metric | Guidance | | :--- | :--- | | Revenue | $245 million (implying 12% YoY growth) | | Adjusted EBITDA Margin | Improvement approaching 25 percentage points YoY | Q4 2024 Guidance For the fourth quarter of 2024, Nextdoor anticipates revenue of $63 million, representing 13% year-over-year growth. The company also expects an adjusted EBITDA loss of $2 million and projects it will generate positive free cash flow during the period Q4 2024 Financial Outlook | Metric | Guidance | | :--- | :--- | | Revenue | $63 million (implying 13% YoY growth) | | Adjusted EBITDA Loss | $2 million | | Free Cash Flow | Positive | Financial Statements Nextdoor's financial statements for Q3 2024 show a decrease in total assets and liabilities, a narrowed net loss to $14.9 million, and improved cash flow from operations, reflecting a strong balance sheet and operational efficiency Condensed Consolidated Balance Sheets As of September 30, 2024, Nextdoor's balance sheet showed total assets of $517.7 million, down from $654.6 million at year-end 2023. The decrease was primarily driven by a reduction in cash and marketable securities. Total liabilities also decreased to $61.6 million from $96.0 million, and the company remains debt-free Key Balance Sheet Items (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $49,700 | $60,233 | | Marketable securities | $375,045 | $470,868 | | Total Assets | $517,663 | $654,564 | | Total current liabilities | $26,756 | $35,411 | | Total Liabilities | $61,618 | $96,007 | | Total Stockholders' Equity | $456,045 | $558,557 | Condensed Consolidated Statements of Operations For the third quarter of 2024, Nextdoor reported revenue of $65.6 million, a 17% increase from $56.1 million in the prior-year period. The company significantly narrowed its net loss to $14.9 million from $38.1 million in Q3 2023, driven by both revenue growth and a reduction in total operating expenses Q3 Statement of Operations Summary (in thousands) | Account | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Revenue | $65,610 | $56,092 | | Total costs and expenses | $86,387 | $100,468 | | Loss from operations | ($20,777) | ($44,376) | | Net loss | ($14,898) | ($38,116) | | Net loss per share | ($0.04) | ($0.10) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash used in operating activities was $32.0 million, an improvement from $44.3 million in the same period last year. The company had a net cash inflow from investing activities of $93.4 million, primarily from maturities of marketable securities. Financing activities used $72.1 million, largely due to $73.3 million in common stock repurchases Nine Months Ended Sep 30 Cash Flow Summary (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($31,958) | ($44,336) | | Net cash provided by investing activities | $93,410 | $40,188 | | Net cash provided by (used in) financing activities | ($72,073) | $8,455 | | Net (decrease) in cash | ($10,533) | $4,379 | Non-GAAP Financial Measures Nextdoor utilizes non-GAAP measures like Adjusted EBITDA to provide clearer insights into core operating performance, demonstrating a significant improvement in Q3 2024 to a $1.3 million loss from a $19.8 million loss in the prior year Reconciliation of GAAP to Non-GAAP Metrics Nextdoor uses non-GAAP measures like Adjusted EBITDA to supplement its GAAP financial statements, arguing they provide better insight into core operating performance. These measures exclude items such as stock-based compensation, depreciation, amortization, and restructuring charges. For Q3 2024, the company reported an Adjusted EBITDA loss of $1.3 million, a significant improvement from a $19.8 million loss in Q3 2023, by reconciling from a GAAP net loss of $14.9 million - The company uses non-GAAP measures like adjusted EBITDA for planning, measuring core operating results, and evaluating financial performance, excluding items like stock-based compensation and depreciation[49][50] Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net loss (GAAP) | ($14,898) | ($38,116) | | Depreciation and amortization | $777 | $1,451 | | Stock-based compensation | $18,440 | $23,343 | | Interest income | ($5,804) | ($6,766) | | Provision for income taxes | $168 | $289 | | Restructuring charges | $— | $— | | Adjusted EBITDA (Non-GAAP) | ($1,317) | ($19,799) |