Nextdoor Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited results are compared with Q1 2022 unless stated otherwise. Nextdoor operates a neighborhood social platform and generates substantially all revenue from advertising.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $49.8 million | $51.0 million | Down 2% |
| Gross profit / gross margin | $39.9 million / 80% | $41.9 million / 82% | Margin down about 2 percentage points |
| Operating loss / margin | $38.8 million / (78%) | $33.2 million / (65%) | Loss widened |
| Net loss | $33.7 million | $32.9 million | Loss widened 2% |
| Adjusted EBITDA loss | $21.7 million | $19.9 million | Loss widened 9% |
| Operating cash flow | $(13.7) million | $(5.5) million | Cash use increased |
Interest income rose to $5.5 million from $0.5 million, primarily reflecting higher interest rates, and partly offset the larger operating loss. Stock-based compensation was $15.8 million, up from $12.1 million. Basic and diluted loss per share was $0.09 in both periods.
At March 31, 2023, cash and cash equivalents were $67.8 million and marketable securities were $507.0 million, totaling $574.8 million. Total liabilities were $98.4 million, primarily operating lease liabilities; the company reported no debt outstanding. Current assets were $614.1 million versus current liabilities of $33.2 million. Accumulated deficit was $652.0 million.
Q1 investing cash flow was positive $24.7 million, largely due to marketable-security maturities and sales, rather than operating cash generation. Financing cash flow was positive $1.6 million. Revenue from U.S. customers was $46.8 million; international revenue was $3.0 million.
Business trends and changes from the prior period
- Weekly active users (WAUs) increased 16% to 42.4 million from 36.7 million. The company reported a presence in more than 305,000 neighborhoods and in one-third of U.S. households.
- Average revenue per WAU declined 16% to $1.17 from $1.39. Management attributed the decrease to WAU growth outpacing slightly lower revenue.
- Management said reduced advertiser demand, which it believes reflected a challenging macroeconomic environment, drove the revenue decline; user engagement partly offset the impact.
- Research and development expense increased 14% to $33.0 million, primarily due to higher personnel costs and headcount. Sales and marketing expense fell 6% to $29.2 million, mainly as performance marketing spending decreased; personnel-related costs increased.
- Cost of revenue increased 9% to $9.9 million, including higher hosting costs associated with user growth and engagement. General and administrative expense rose 9% to $16.5 million.
Outlook, risks, and unusual items
- The filing provides no specific numerical revenue, earnings, or cash-flow guidance. Management expects operating losses and operating cash outflows to continue for the foreseeable future and anticipates funding short-term working-capital and capital-expenditure needs from existing cash, cash equivalents, and marketable securities.
- Key risks include dependence on advertising revenue and advertiser spending, macroeconomic weakness, monetization lagging user growth, competition, privacy and advertising-measurement changes, content and regulatory exposure, cybersecurity, and reliance on third-party providers including Google Ad Manager and AWS.
- Management noted that Apple email-client changes affect measurement of a portion of WAUs; the reported metric partly relies on estimates. The company also identifies uncertainty around future platform and privacy-policy changes affecting ad targeting and measurement.
- On January 30, 2023, Nextdoor amended its San Francisco headquarters lease, extending the term through April 30, 2032. The change increased reported right-of-use assets and lease liabilities; total operating lease liabilities were $70.8 million at quarter-end.
- The company did not repurchase shares in Q1. It reported $22.8 million remaining under its $100 million repurchase authorization, which expires June 30, 2024 unless completed earlier.
- No material legal matters were reported as of March 31, 2023. Management stated disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether advertiser demand and revenue stabilize, and whether monetization improves as WAUs grow while ARPU declines.
- Whether operating expenses and cash burn moderate; Q1 operating cash use was $13.7 million, materially higher than the prior-year quarter.
- How much of the $574.8 million cash and securities balance remains available after future operating needs, lease commitments, and any share repurchases.
- Whether management’s WAU estimates remain reliable given email-measurement limitations, and whether ad-targeting or privacy changes affect advertiser returns.
- The effects of the extended headquarters lease and the remaining share-repurchase authorization on future liquidity and capital allocation.