The ideals behind Nextdoor Holdings (NYSE:KIND) stock are those that everyone generally agrees upon. In a world that can feel increasingly disconnected and unkind, a sense of community ought to be reclaimed.
Nextdoor has inherent appeal to those who get the sense that the individual members of society are growing further apart. The firm touches on something unstated, claiming:
“Our purpose is to cultivate a kinder world where everyone has a neighborhood they can rely on. Society’s need to be connected, particularly to those nearby, and the increasing importance of everything local continues to be amplified.”
You, me, and everyone else likely agree with that notion. So, a social network that supports the neighborhood seems like the kind of firm that should grow fast. However, the fundamentals for Nextdoor Holdings aren’t as attractive as the notions underpinning it.
Nextdoor Holdings hasn’t exactly performed poorly. Fundamentally speaking, it has shown growth as a general trend. However, it has also shown some fluctuation along that path of growth.
For example, investors who take a look at the firm’s revenues over the past few quarters will note that they are increasing. Nextdoor Holdings recorded $53 million in revenue in the third quarter (Q3) ‘21, up 66% from $32 million a year earlier.
That’s attractive to most investors, generally speaking. It seems to provide strong evidence that a locally-focused, neighborhood-oriented social media platform is investible. It is just that some fluctuations have cropped up along the way. In Q1 ‘21 revenues dropped to $34 million after reaching $40 million the quarter prior.
That’s the kind of bump in the road that doesn’t strengthen its investment prospects.
And Nextdoor Holdings has shown a less than steady climb in the metrics it focuses on. The good news is that its weekly active user count has never failed to hold steady or increase. However, pretty much every other metric has been inconsistent. That includes average revenue per user, earnings before interest, taxes, depreciation, and amortization (EBITDA), and net losses.
It all adds up to unpredictability. So, despite the appeal of being neighborly, capital has fled from the stock. As a result, KIND stock has trended down since November. Prices have steadily dropped from $12 to below $6 currently.
Opportunity With KIND Stock
When prices fall, opportunities arise. Well, that’s at least one case that could be made around Nextdoor Holdings. At $6, there is some logic in establishing a position.
KIND stock has minimal analyst coverage. There are only 2 analysts who have given it a target price. The encouraging news is that they peg it at $10 and $16, respectively. So, either price represents an attractive return at below $6.
The other piece of encouraging news comes in the form of their growth projections. Those analysts expect the company’s 2022 revenues to reach $256 million. They believe Nextdoor Holdings will record approximately $188 million in 2021 revenue. This type of revenue growth should logically push KIND stock higher.
Network Effects & Net Losses
Social media platforms are no different than any other business in one regard: as they scale, network effects reach a tipping point at which the business begins to rapidly succeed.
In the case of Nextdoor Holdings, that plays out with neighborhood penetration increasing, which coincides with an increase in local content.
When that tipping point is reached, net losses should naturally improve. The problem is, no one knows when that might occur. Through the first three quarters of 2020, the company realized a $60.3 million net loss. That increased to just above $65 million through the first three quarters of 2021.
So, the company has to continue to improve its local networks, which will result in more local content, more engagement, and stronger financial results.
What to do with KIND Stock
Again, the real problem is no one knows when that might all conspire. Revenues are growing but there are several other metrics to consider.
Keep KIND stock in mind, but I wouldn’t pull the trigger just yet.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.