Nextdoor Holdings (NYSE:KIND) stock launched Nov. 8, rose quickly, plummeted, bounced and appears to be holding steady at this time.
Nextdoor Holdings is the result of a special purpose acquisition company (SPAC) combination with Vivod Khosla’s Khosla Ventures Acquisition II. It traded as KVSB on the NASDAQ. Once Nextdoor went public, the stock moved to the NYSE.
The most important number from the offering is $674 million. That’s how much CEO Sarah Friar, a former Square (NASDAQ:SQ) executive, now has to turn around the company. As its numbers show, she has her work cut out for her.
Nextdoor is a social media network focusing on neighborhoods. Since taking command in late 2018, Friar has engineered some solid top-line growth. The problem is the cash burn isn’t changing to cash flow as that growth comes in.
Revenue for the three months ending September 30 was $52.7 million, 66% ahead of the $31.8 million that came in during the previous year, but the net loss of $19.3 million was almost identical to the previous year’s $19.1 million.
Every type of cost moved up in lockstep – research, marketing and general administration. The cash flow loss was $32.3 million, almost identical to the previous year’s $35.3 million.
I don’t mind paying a premium for growth, and 66% growth is impressive. Between the IPO, the PIPE, the shares held by management, and the venture funders, KIND has a market cap of $4.4 billion on what may be $200 million in revenue this year if it’s fortunate.
The first three quarters came in at $133 million.
Paying 22 times revenue for a money-losing social network does not sound like a good investment.
A Closer Look at KIND Stock
Friar’s strategy for turning this around is to kill them with kindness.
Many social media feeds have become cesspools, and Nextdoor is no exception. I’ve been on it. It’s catty. It can be horribly racist.
Friar wants to focus on good news, on getting those working from home to connect in a positive way. One of the recent personal recommendations on her Twitter feed, is Goodable, an all good news website.
Friar is looking to small local businesses for monetization, alongside national advertisers who want a positive image. The first kind of ad is hard to get and doesn’t scale. The second practically comes from the corporate charity budget.
Fitting costs to scale is the local web’s big problem. It’s why local newspapers have disappeared behind paywalls. It’s why the small sites replacing them can’t gain traction.
But if Friar and her team can get 25% of an area on the platform and positively engaged, traffic and potential revenue both rise sharply. The trick is to create a safe space without paying the costs of top-heavy moderation and without paying for content. Once lift-off is achieved, in theory, a virtuous circle can be created.
The Bottom Line
Nextdoor has some big boosters. ARK Invest, T. Rowe Price, Soroban Capital, Baron Capital Group, Dragoneer, and ION Asset Management all joined the Nextdoor PIPE. Sponsor Vivod Khosla co-founded Sun Microsystems in an earlier life and has a huge reputation.
Personally, I would love to see KIND stock take off. There’s an enormous hole in the local web, in local discussion and in local information generally. It’s a big problem, and it’s helping tear society apart.
But understand that KIND stock is still a speculation, and at a very high valuation. There’s a reason this problem has only gotten worse over the last 25 years. I’m not certain Nextdoor has solved it yet, but I will be rooting for Friar.
On the date of publication, Dana Blankenhorn held no positions in any securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.