Nextdoor Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Nextdoor operates a neighborhood social platform and generates substantially all revenue from advertising. It reported availability in more than 300,000 neighborhoods and use in one-third of U.S. households.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | First nine months 2022 | First nine months 2021 |
|---|---|---|---|---|
| Revenue | $54.0 million | $52.7 million | $159.5 million | $132.9 million |
| Operating loss | $36.4 million | $19.1 million | $107.9 million | $65.5 million |
| Net loss | $34.7 million | $19.4 million | $104.5 million | $66.0 million |
| Adjusted EBITDA loss | $18.4 million | $7.7 million | $58.3 million | $35.8 million |
| Operating cash flow | Not separately stated | Not separately stated | $(40.8) million | $(33.3) million |
- Q3 revenue grew 2%, while WAUs rose 17% to 38.3 million. Average revenue per WAU (ARPU) fell 12% to $1.41, indicating user growth outpaced monetization. For the first nine months, revenue increased 20%, WAUs increased 25%, and ARPU declined 4% year over year.
- Costs and expenses rose 26% in Q3 and 35% for the nine-month period. Q3 gross margin was approximately 82%, down from approximately 86% a year earlier; operating loss widened as spending grew faster than revenue. Higher hosting, personnel, research and development, and general and administrative costs contributed.
- Stock-based compensation was $17.3 million in Q3 and $47.0 million for the first nine months, versus $10.6 million and $27.0 million, respectively, in 2021. Adjusted EBITDA is a non-GAAP measure; the company cautions it should not be considered alone or as a substitute for GAAP results.
- Cash, cash equivalents, and marketable securities totaled $604.5 million at September 30, 2022; current assets were $641.7 million and current liabilities $34.6 million. The company reported no debt outstanding. Cash and cash equivalents alone were $90.7 million, down from $521.8 million at December 31, 2021, partly reflecting purchases and maturities of marketable securities.
- Nine-month investing cash outflow was $325.4 million, largely reflecting net purchases of marketable securities. Financing cash outflow was $65.7 million, including $77.2 million of share repurchases. Accumulated deficit was $584.8 million.
Changes, outlook, and risks
- Management said revenue growth reflected advertiser demand, sales-team growth, and higher engagement; it attributed Q3 ARPU decline to WAU growth exceeding revenue growth. The company shifted some user-acquisition marketing toward organic channels.
- No specific revenue, earnings, or cash-flow guidance was provided. Management expects operating losses and operating cash outflows to continue for the foreseeable future, with continued investment in research and development, sales and marketing, and general and administrative functions. It expects existing liquid resources to meet short-term working-capital and capital-expenditure needs; longer-term funding could include financing if needed.
- The board authorized up to $100 million of repurchases through June 30, 2024. Through September 30, the company had repurchased 23.3 million shares for $77.2 million, leaving $22.8 million authorized. The program is discretionary and reduces available liquidity.
- After quarter-end, the company disbursed $5 million under an unsecured loan facility allowing up to $15 million of lending to Opportunity Finance Network over 24 months. No disbursements had been made at September 30.
- Key risks include reliance on advertising, weaker advertiser demand in a difficult macroeconomic environment, the gap between user growth and monetization, intense competition, privacy and advertising-measurement changes by Apple and Google, dependence on third-party providers including AWS and Google Ad Manager, cybersecurity and content risks, and international expansion and regulatory complexity. WAU calculations partly rely on estimates following Apple email privacy changes.
- Management reported disclosure controls were effective at September 30 and no material change in internal control over financial reporting during the quarter. It stated no pending legal matter was expected to have a material adverse impact. The company expected to lose emerging-growth-company status at December 31, 2022.
Important facts for investors to verify
- Whether WAU growth can translate into sustained revenue and ARPU growth, particularly as substantially all revenue depends on advertising.
- Whether expense growth and stock-based compensation moderate enough to improve operating losses and cash burn.
- How the share-repurchase program and the subsequent $5 million loan disbursement affect liquidity and capital allocation.
- The composition, maturities, and fair-value sensitivity of the $513.7 million marketable-securities portfolio; available-for-sale securities carried $4.2 million of unrealized losses at quarter-end.
- Potential dilution and voting control: Class B shares carry 10 votes each versus one vote per Class A share; the filing also describes registered resale shares and substantial outstanding equity awards.