Nextdoor Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Comparisons are with the same 2021 periods. Nextdoor operates a neighborhood social platform and generates substantially all revenue from advertising.
Key financial and operating metrics
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $54.5m | $45.8m | $105.5m | $80.2m |
| Gross profit and margin | $44.4m; 81.3% | $39.2m; 85.6% | $86.3m; 81.8% | $67.2m; 83.9% |
| Operating loss | $38.3m | $21.5m | $71.5m | $46.5m |
| Net loss | $36.8m | $21.5m | $69.8m | $46.6m |
| Adjusted EBITDA loss (non-GAAP) | $20.0m | $11.3m | $40.0m | $28.1m |
| Operating cash flow | Not separately provided | Not separately provided | $(28.1)m | $(25.6)m |
Q2 diluted loss per share was $0.10, versus $0.21. Adjusted EBITDA is a non-GAAP measure; the filing reconciles it to net loss.
- Engagement and monetization: Q2 weekly active users (WAUs) were 36.9m, up 26% from 29.2m. ARPU was $1.48, down 6% from $1.57. Management attributed revenue growth to advertiser demand and higher engagement; WAU growth outpaced growth in ad impressions, while higher pricing per impression partially offset the ARPU decline.
- Costs and margins: Q2 total costs and expenses rose 38% to $92.8m, faster than revenue growth of 19%. Operating margin was approximately negative 70%, compared with negative 47% a year earlier. Cost of revenue increased 54%, including higher hosting costs; research and development rose 40%, sales and marketing 24%, and general and administrative 58%.
- Liquidity and debt: At June 30, cash and cash equivalents were $40.2m and marketable securities were $626.1m, totaling $666.3m. Total liabilities were $91.7m, principally operating lease liabilities; the company reported no debt outstanding. Six-month investing cash outflow of $435.6m primarily reflected purchases of marketable securities, rather than operating investment alone.
- Balance sheet: Accumulated deficit was $550.1m. Stock-based compensation was $17.5m in Q2 and $29.7m for the first half, versus $9.2m and $16.4m, respectively, in 2021.
Material changes and notable items
- First-half revenue increased 32%, while total costs and expenses increased 40%; first-half net loss grew 50% and Adjusted EBITDA loss grew 42% year over year.
- Cash and cash equivalents fell from $521.8m at year-end 2021 to $40.2m, while marketable securities rose from $194.0m to $626.1m. Total cash, cash equivalents and marketable securities declined from $715.8m to $666.3m.
- The board authorized a $100m share repurchase program through June 30, 2024. The company repurchased 3.06m shares for $10.5m in Q2. Through August 9, it repurchased a further 4.55m shares for $16.5m; $14.5m of that amount was prepaid by June 30.
- On June 29, the company agreed to lend Opportunity Finance Network up to $15m over 24 months, unsecured, at 0.75% interest per annum, with repayment due 10 years after each disbursement. No funds had been disbursed by June 30.
Outlook, commentary, and risks
No numerical revenue or earnings guidance is provided. Management expects operating losses and operating cash outflows to continue for the foreseeable future, alongside further spending on product development, sales and marketing, and general administration. It expects cost of revenue to rise in absolute terms and potentially as a share of revenue in the near to medium term; it expects certain other expense ratios to vary near term and decrease over the long term.
- Advertising concentration exposes results to changes in advertiser budgets, demand, pricing, and macroeconomic conditions, including inflation, rising interest rates, and a potential recession.
- Privacy rules and changes to Apple and Google platforms may limit ad targeting, measurement, email engagement measurement, and user acquisition. The filing says Apple email-client changes require estimates for part of WAUs, which may affect metric accuracy.
- Other principal risks include competition, sustaining user growth and engagement, international expansion, dependence on third parties such as Google Ad Manager and AWS, cybersecurity and privacy incidents, content moderation and regulatory exposure, and inability to achieve profitability.
- Management said interest-rate sensitivity of the short-term investment portfolio was not material under a hypothetical 100-basis-point change. Foreign-currency exposure was not considered material for the periods presented; the company had no formal currency hedge program.
- The company reported no material pending legal matters and no material changes to internal control over financial reporting; management concluded disclosure controls were effective at the reasonable-assurance level. It expects to lose emerging growth company status at year-end 2022.
Investor verification priorities
- Track whether WAU growth translates into stronger monetization, especially given Q2 ARPU’s decline and advertising concentration.
- Assess expense growth, gross-margin compression, stock-based compensation, and the trajectory toward profitability and operating cash generation.
- Review liquidity and investment portfolio composition and fair-value losses, as well as the remaining pace and funding of share repurchases.
- Monitor the accuracy and methodology of WAU estimates affected by Apple email changes, and the effects of privacy and platform policy changes on advertising.
- Evaluate the terms, funding, and liquidity impact of the OFN loan commitment and the company’s stated expectation of ongoing operating cash outflows.