Nextdoor Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Nextdoor operates a neighborhood-focused social platform and generates substantially all revenue from advertising.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $56.1m | $54.0m | $162.8m | $159.5m |
| Operating loss | $44.4m | $36.4m | $124.6m | $107.9m |
| Net loss | $38.1m | $34.7m | $107.2m | $104.5m |
| Adjusted EBITDA loss | $19.8m | $18.4m | $60.1m | $58.3m |
| Cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $44.3m | $40.8m |
- Q3 revenue grew 4%; nine-month revenue grew 2%. Q3 gross margin was approximately 80.9%, versus 81.7% a year earlier. Operating costs and expenses rose 11% in Q3 and 7% year to date.
- Q3 net loss per share was $0.10, compared with $0.09; the nine-month figures were $0.28 and $0.27, respectively.
- Q3 weekly active users (WAUs) were 40.4m, up 6% year over year, while ARPU was $1.39, down 2%. Nine-month ARPU declined 8% year over year.
- Stock-based compensation was $23.3m in Q3 and $60.7m for the first nine months, up from $17.3m and $47.0m, respectively, in 2022.
Liquidity, debt and cash flow
- Cash, cash equivalents and marketable securities totaled $539.7m at September 30, 2023, down from $583.3m at December 31, 2022. The balance sheet also included $11.2m of non-current restricted cash.
- Management reported no debt outstanding. Operating lease liabilities totaled $68.0m, including $6.0m current and $62.0m non-current.
- Nine-month operating cash outflow was $44.3m. Investing activities provided $40.2m, primarily reflecting marketable-security maturities and sales, and financing activities provided $8.5m, primarily from employee stock transactions.
- Management expects existing cash, cash equivalents and marketable securities to cover short-term working-capital and capital-expenditure needs; it expects operating losses and operating cash outflows to continue for the foreseeable future. Future financing may be needed, with no assurance it will be available on acceptable terms.
Changes, outlook and risks
- Management attributed revenue growth to improved advertiser demand, which it associated with a stabilizing macroeconomic environment, and increased engagement. WAU growth exceeded revenue growth, contributing to lower ARPU.
- Research and development costs increased 19% in Q3, primarily due to personnel costs and headcount. Sales and marketing rose 5% in Q3, while nine-month sales and marketing fell 2%, reflecting lower performance marketing spending partly offset by higher personnel costs.
- Interest income increased to $6.8m in Q3 and $18.6m year to date, primarily due to higher interest rates. It partly offset operating losses but is not operating revenue.
- No numerical revenue or profitability guidance is provided. A subsequent-event disclosure says Nextdoor announced a cost-reduction plan on November 7, 2023, affecting approximately 25% of full-time employees. The company estimated about $12m in one-time charges, primarily cash costs, plus $0.5m in stock-based compensation expense, with most charges expected in Q4 2023.
- The company had $22.8m remaining under its share repurchase authorization at September 30, 2023, and made no repurchases in the first nine months of 2023. It also made a $2.5m loan disbursement to Opportunity Finance Network during that period.
- Key risks include reliance on advertising revenue and advertiser spending; competition and monetization execution; privacy, measurement and platform-policy changes; macroeconomic uncertainty; cybersecurity and third-party service disruptions; and evolving content, privacy and AI regulation. The filing reports no material pending legal matter and says disclosure controls were effective at September 30, 2023.
Important facts for investors to verify
- Whether user growth can translate into higher ARPU and revenue growth, especially given the year-to-date ARPU decline.
- Whether expense reductions improve cash burn and operating performance, and whether the workforce reduction affects product development, engagement or revenue.
- The pace of cash and marketable-security use, including lease commitments and future capital needs.
- The contribution of stock-based compensation to reported losses and potential share dilution; 85.7m potentially dilutive securities were excluded from diluted loss per share calculations.
- The reliability and methodology of WAU figures: the company states that Apple email privacy changes limit measurement and require estimates for part of the metric.