Nextdoor Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Nextdoor operates a neighborhood-focused social platform and generates substantially all revenue from advertising. At quarter-end, it was present in more than 310,000 neighborhoods across 11 countries.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $56.9 million | $54.5 million | $106.7 million | $105.5 million |
| Operating loss | $41.4 million | $38.3 million | $80.3 million | $71.5 million |
| Net loss | $35.4 million | $36.8 million | $69.1 million | $69.8 million |
| Adjusted EBITDA loss | $18.6 million | $20.0 million | $40.3 million | $40.0 million |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $(26.0) million | $(28.1) million |
- Q2 gross profit was approximately $46.5 million, or 81.7% of revenue, compared with approximately $44.4 million, or 81.3%, a year earlier. Operating loss was 72.8% of revenue versus 70.1%.
- Q2 diluted loss per share was $0.09, compared with $0.10. Six-month diluted loss per share was $0.18 in both periods.
- Cash, cash equivalents, and marketable securities totaled $551.6 million at June 30, 2023. The balance sheet also included $11.2 million of restricted cash.
- The company reported no debt outstanding. Operating lease liabilities totaled $69.5 million, including $5.8 million current.
- Six-month operating cash use improved by $2.1 million year over year. Cash flow from investing activities was $52.6 million, primarily reflecting marketable-security maturities and purchases; financing activities provided $3.6 million.
Changes versus prior comparable periods
- Q2 revenue increased 4% year over year, while six-month revenue increased 1%. Management attributed growth to improved advertiser demand and user engagement, which it associated with a stabilizing macroeconomic environment.
- Weekly active users (WAUs) rose 13% to 41.6 million in Q2, but Q2 average revenue per WAU fell 7% to $1.37. Six-month ARPU declined 11%. Management said WAU growth exceeded revenue growth.
- Q2 net loss narrowed 4%, and adjusted EBITDA loss narrowed 7%. For the six-month period, net loss narrowed 1%, while adjusted EBITDA loss increased 1%.
- Operating expenses rose 6% in both Q2 and the first half. Research and development increased 14% in each period, while sales and marketing fell 4% in Q2 and 5% for the first half, largely due to lower user-acquisition marketing spend. General and administrative expenses increased 12% and 11%, respectively.
- Interest income increased substantially, primarily because of higher interest rates, helping offset operating losses. Stock-based compensation increased to $21.6 million in Q2 from $17.5 million and to $37.4 million for the first half from $29.7 million.
Outlook, risks, and notable 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, alongside significant investment in product development, marketing, and administration. It expects existing cash and investments to cover short-term working capital and capital expenditure needs.
- Key exposures include dependence on advertising, advertiser demand and macroeconomic conditions; competition; the ability to grow engagement and monetization; privacy and advertising-measurement restrictions from platforms such as Apple and Google; cybersecurity, content moderation, regulatory and litigation risks; and dependence on third-party providers including Google Ad Manager and AWS.
- Nextdoor cautioned that WAUs are estimates in part because Apple email privacy changes limit measurement of some email engagement. The company also noted that its business metrics are internally calculated and not independently validated.
- The board’s share repurchase authorization runs through June 30, 2024; $22.8 million remained available at quarter-end. No shares were repurchased in the first half of 2023.
- The company extended its San Francisco headquarters lease through April 2032. It also disbursed a further $2.5 million under its loan agreement with Opportunity Finance Network; the loan bears 0.75% interest and is due ten years after each disbursement.
- Management reported effective disclosure controls as of June 30, 2023, with no material change in internal control over financial reporting during the quarter. It reported no material pending legal matters.
Important facts for investors to verify
- Whether WAU growth can translate into sustained revenue growth and a reversal in declining ARPU.
- Whether expense growth, particularly in research and development and personnel, produces improved monetization or profitability.
- Cash consumption and the expected runway, taking account of operating losses, lease commitments, the share repurchase program, and investment maturities.
- The effect of stock-based compensation and potential dilution; $157.7 million of unrecognized stock-based compensation remained at June 30, 2023.
- How advertising demand, privacy-policy changes, and the estimated nature of some engagement metrics affect reported results and future performance.