Nextdoor Holdings, Inc.

Good afternoon. Thank you for attending today's Next Door Q4 2021 earnings call. My name is Tania and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Matt Anderson, head of investor relations. Please go ahead.

Thank you, Tania. I'm Matt Anderson, Head of Investor Relations. Good afternoon, and thank you for joining us today to review Nextdoor's fourth quarter 2021 financial results. With us on the call today are Sarah Fryer, Chief Executive Officer, and Mike Doyle, Chief Financial Officer. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on SEC's website and in the investor relations section of our website, as well as the risks and other important factors discussed in today's earnings release. Additionally, non-GAAP financial measures will be discussed on today's conference call. A reconciliation of these measures to their most directly comparable gap financial measures can be found in today's earnings release. With that, I'd like to turn the call over to Sarah.

Thank you, Matt, and hello, everyone. Q4 rounded out a strong 2021 for Nextdoor. We drove significant neighbor growth at scale, meaningfully increased engagement on the platform, welcomed businesses of all sizes, and with that delivered exceptional revenue growth. We also successfully completed our public offering, growing our cash balance to over $700 million, putting us in a position of strength to continue investing for long-term growth. In Q4, we delivered strong revenue growth of 48% year-over-year and drove 32% year-over-year growth in weekly active users, or WOW, to $36 million. Total revenue growth for 2021 was 56%, and accelerated by seven points year over year from 49% in 2020. Our strategy centered on building an active valued community is working. WOW Growth is driven by both new neighbors joining and finding value on Nextdoor, but also from current neighbors becoming increasingly more active. In Q4, WOW with the percent of total neighbors increased five percentage points year over year to 52% which represents an all time high. One of our key product initiatives in Q4 was the global launch of connections between neighbors. When you connect with another neighbor, you both have a more engaging, personalized experience on the platform. Looking ahead, we plan to expand connections to all neighborhood stakeholders. We'll start by enabling neighbors to connect with small and medium sized businesses in the first half of 2022. and will follow with the ability to connect with large brands, public agencies, and other local organizations and service providers. This will allow neighbors to hear from organizations they care about, and it will enable organizations to create meaningful, authentic connections with a uniquely engaged local audience. We believe connections will drive deeper engagement with Nextdoor because neighbors want to hear from neighbors and organizations that they know and trust. We continue to drive innovation to ensure that Nextdoor is a kind, welcoming platform. This is essential both to achieving our purpose and also to building a platform where all feel safe and are actively contributing. Our just-launched Transparency Report, a first for Nextdoor, highlighted our unique approach to moderation. This approach is multifaceted, combining proactive guidance through our Good Neighbor Pledge, leading-edge machine learning technology, and human review. As a reminder, less than 2% of all content on Nextdoor is actually reported for moderation. But today, we have over 230,000 volunteer community moderators who in 2021 reviewed almost 87% of all reported content in under five hours from the time of the report, as well as an internal neighborhood operations staff. Our moderators' high speed of engagement underscores the strength of the community on Nextdoor. Nextdoor's Kindness Reminder utilizes technology to detect language that may be harmful and make neighbors consider editing their post or comments before it goes live. In 2021, neighbors who encountered the Kindness Reminder edited or even withheld their post or comment over one-third of the time. On the international front, engagement metrics surpassed even U.S. engagement, giving us confidence in our global opportunity. Our approach for the year was to increase penetration in four key markets, Australia, Canada, the Netherlands, and the UK. In Q4, total wow in these focus markets grew almost 50% year over year, and 58%, or almost three out of every five verified neighbors, returned weekly. Turning to advertisers, in Q4, we continued to make progress scaling our proprietary ad platform. Nextdoor is uniquely positioned to be the platform that advertisers can rely on to connect them to an actively engaged local audience. For advertisers, our value proposition is simple. First, we provide access to a unique audience. According to a fourth quarter 2021 U.S. data from GWI, 76% of neighbors who visit Nextdoor at least once per month don't visit SNAP 69% don't visit TikTok, and 58% don't visit Twitter. Second, neighbors come with high intent. From our Q4 Insights series, we see that 24% are more likely than the average social media user to click on sponsored posts. Third, we can deliver a highly localized message, and this drives results. On Nextdoor, localized messaging drives 58% higher ad engagement than non-localized messaging. In Q4, we partnered with Hershey's on our 2021 Treat Map, which allowed neighbors to mark if they were planning to celebrate or hand out candy. The campaign was successful in generating incremental sales for Hershey's and expanding its footprint into households who hadn't purchased candy in the past year, clearly not my house. The investment in our proprietary ad platform is ensuring we can better utilize the first-party data from our fully logged-in audience. Hence, we can serve ads that are relevant to the neighborhood that people live in, and our users find them engaging, useful, and actionable. In a world that is increasingly shifting towards cookie-less browsing, Nextdoor's value is becoming more and more differentiated. For all advertising objectives, from brand awareness through direct response, we continue to improve our measurement and targeting capabilities. For example, the majority of our cost per acquisition, or CPA-focused advertisers, have now adopted our proprietary conversion pixel, which improves ad relevance and attribution. Home Chef is one such advertiser who saw their average newsfeed CPA improve by 25% over the course of 2021, giving them confidence to meaningfully scale their spend on Nextdoor. Finally, we're enhancing our self-serve capabilities with the Neighborhood Ad Center, or NAC. This increasingly enables us to serve a wider range of advertisers and ad agencies. NAC is only available for an initial subset of mid-market customers today, but our focus on building the platform and the early success customers are experiencing give us confidence for our rollout to advertisers of all sizes in 2022. We're excited by our progress and our 2022 strategy, which is designed to increase growth and engagement for all neighborhood stakeholders and deliver a richer experience for our advertisers. ultimately driving sustainable long-term growth in our business. And with that, I'll turn it over to Mike for our financial highlight.

Thank you, Sarah, and good afternoon, everyone. I'm pleased to report that we ended 2021 on a strong note. In Q4, we saw a second straight quarter of accelerating neighbor growth, with WOW reaching 36 million, up 32% year-over-year, an increase from 20% year-over-year growth in Q3. Total revenue was $59 million, which was an increase of 48% year-over-year and 13% quarter-over-quarter. We saw healthy demand across advertiser sizes, objectives, geographies, and verticals. Our revenue continues to be fairly evenly split between direct response and brand marketing. And in Q4, we saw demand at all levels of the funnel. Throughout Q4, our advertisers came to us for creative, impactful, relevant campaigns that meet the moment. In addition to the treat map that Sarah mentioned, We had campaigns like our holiday cheer map, Thanksgiving cookbook, and Veterans Day campaign with Veterans United. Q4 global ARPU grew 12% year-over-year to $1.65, driven by increased engagement among our neighbors. We also continued to build on our efforts from earlier in 2021 to better optimize our yield and improve our direct relationships with advertisers. While international is only a small part of our revenue today at less than 5%, We are continuing to grow and improve out our model and advertiser value proposition in non-US markets. In Q4, international advertiser count grew 74% year-over-year. Adjusted EBITDA for Q4 was a loss of $8 million. The six-point year-on-year improvement in adjusted EBITDA margins shows that we can remain in investment mode while also building towards long-term profitable growth. I'll end with our outlook. Our full-year revenue guidance is $254 to $256 million, a year-over-year growth rate of 33% at the midpoint of the range, and an increase from our last full-year 2022 revenue guide of $252 million. We expect full-year 2022 adjusted EBITDA margin to be minus 18%, consistent with our prior guidance. For Q1 2022, we are expecting revenue of $48 million, a year-over-year growth rate of 40%, and an adjusted EBITDA loss of $23 million. We are excited by the scale of our opportunity and our ability to execute against it, and we are going to continue to invest. Thank you for joining our earnings call today. With that, I'll turn it over to the operator for Q&A. Operator?

Thank you. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thank you so much for taking the questions, and I hope everyone on the team is doing well. Maybe coming back to the comments on advertiser momentum as you leave 21 and move into 22, can you quantify or give us a sense of some of the momentum around advertiser diversity, advertiser budget, or how measurement and ROI continues to evolve as we move from one calendar year to the next in terms of measuring some of the efficacy of some of the changes and investments you've made and how that means potential tailwinds for the advertising revenue in 22 and beyond. Thanks so much.

Eric, thank you for the question, and Sarah, really appreciate it. I'm going to start just overall talking about the ad platform right now. Clearly a big area of investment for us. First and foremost, as we went through 2021, we began that shift over to our own proprietary ad platform. If you recall, Nextdoor has a fully logged in audience. We're not having to inference where you are. We're not following you around the web with cookies. And with that, we have a lot of data that helps advertisers target and clearly get outcomes that's keeping them pretty excited, whether it's for brand awareness or the whole way down into direct response. In terms of our investments here, as I talked about in my prepared remarks, first and foremost, it's the ad-serving platform itself, what we call NAC. So that's the way in. And the big shift there to bring more advertiser diversity to the platform is, of course, opening up self-serve. Because that will allow us to go from the smallest of micro-merchants who need to create an ad on the fly, probably with a template, they're probably super busy, they're not very sophisticated, all the way up to some of the most sophisticated advertisers in the world, including ad agencies, who want to be really nimble with, say, ad creatives and so on. On the back end, the main investment there is how do we serve the best ad to the best neighbor at the best time for them? And something really differentiated about Nextdoor, of course, is that ads on Nextdoor are often content because we're a very high utility platform. People are coming looking for the plumber. They're looking for maybe someone to help them do their gutters in that moment. They're looking for a great financial advisor, and that makes Nextdoor really perform well across a whole kind of gamut of different advertisers. So in terms of the different cuts you might think of, there's clearly scale. We can go from small to large. There's where we play in the funnel. We can go from brand awareness the whole way to DR. Today it's about evenly split. And then clearly there's diversity in terms of the type of advertiser. Home services, home run for us. Financial services, tech. We're starting to see some green shoots in areas like travel and entertainment as neighbors want to get out and about. And then CPG is an area that we've put a lot of investment into, and we're starting to see some really good outcomes. Hershey's is a great example. Mike, do you want to take how it really dovetails into guidance and thinking about financial?

Sure. So the momentum with advertisers, the most important part is their interest in scaling up their campaigns and taking advantage of our larger engaged audience, and the ability we have to offer more targeting and larger targeted groups, which ultimately help them to drive performance. We've also made a significant investment in our measurement ecosystem, both capabilities on our proprietary ad platform as well as integrations with third parties, which give advertisers more confidence to increase spend being able to see results on the other side. So over the course of all of 2021, we saw increased retention and more evergreen spend, which helps us to have more visibility into our 2022 book of business and allow us to build on a larger base.

Thanks so much.

Thank you, Mr. Sheridan. The next question is from the line of Brian Nowak with Morgan Stanley. Your line is open.

Great. Thanks for taking the questions. I want to go back to the advertising question a little bit. Can you give us a little more quantification around what you're seeing from the ad platform or the self-serve? Maybe any nuggets of what the ad spending growth or the ad spending trends look like for advertisers before and after they adopt these new tools? So we can get a little more idea of the momentum that you're talking about there, Mike. That would be helpful. Then the second one, can you talk to us a little bit about what the U.S. or the North America wow trends look like? How quickly are those growing and sort of what are the neighborhoods where you're seeing the most growth and what's driving that? Thanks.

Sure. Sure. So let me start with the advertiser question and what we're seeing there. So, you know, first of all, the ad spending, the demonstration of the results on the platform and the capabilities that we're able to deliver to advertisers, both through our self-serve ad platform as well as our measurements measurement capabilities and proprietary ad platform are demonstrated with, most importantly, by revenue growth. And so we're seeing advertisers, an increased number of advertisers and a greater spend per advertiser as a demonstration of the value that they are seeing. Your question in particular about early indications from our proprietary ad platform is we are very early in that migration and we're working across all different segments of the advertisers from enterprise, mid-market and SMB to make sure that they are onboarded in a way that is constructive to the campaigns that they're serving and ultimately opens up increased spend. But we're early in that journey, so I think we definitely can comment on it in future periods. Importantly is the overall purpose of building a proprietary ads platform and that's having a unified base of our inventory and getting access to the supply we have on the platform to all advertisers so that can be best optimized across campaigns down to a single neighborhood or whether it's something much broader. That investment is relevant for all different segments of the advertisers, and it's one that reflects the learnings we've had with advertisers over time to know exactly what they want from our platform. The second question was about WOW trends. And so as we talked about the 36 million WOW in the period with 32% year-on-year growth, it's something we're very proud of. Our product roadmap is focused on driving engagement. As we've talked about in the past, the reason that we focus on weekly active users is because we know there's a huge opportunity to bring Mal on our platform and convert them into WOW and increase their session frequency, drive utility, and improve the number of times they're coming back to the platform, as well as the content that they're creating and engaging with when they're on the platform.

Yeah, and maybe I'll dive in on the back of that WOW question. Thank you, Brian, for it. So if you ask about North America, U.S. in particular, our overall WOW growth was 32% year-over-year, up to 36 million. But if you look at U.S. WOW growth, since it's still the largest portion of our base, that grew at 30% year-over-year, so still a really healthy clip. When you're in one in three households, what you're seeing is there's not a particular neighborhood that I would point to that's driving growth. It's really growth across the board. And one of the things that remains, I think, a really strong part of the Nextdoor story is how many of our new neighbors come to us organically. That has stayed in a really kind of best-in-class sort of range and continues to be the case. In fact, when we look to 2022, what you see is shifting a little bit more of our paid marketing spend into international because we feel really good about what the product pipeline is doing to build growth and engagement in the U.S. In particular, in that product pipeline, there are a couple of areas that I would mention. Number one is connections. We went pretty deep on it in our shareholder letter. It's not really impacting results as yet, so on a backward look, we're not seeing a lot of impact because it only launched in Q4, but we definitely believe it will have a lot of impact to growth and engagement as we look forward. Second thing I'd mention is that ad platform, while it's great for advertisers and it's great for driving monetization, it's also great for neighbors because the right ad at the right time is content. And that makes Nexra a very engaging highly utilitarian platform for neighbors the better and better we get at that and then finally we have put a lot of emphasis and investment into the evolution of the feed itself we want to make sure that it's super easy to post so that you can be an active part of an active valued community we want to make sure it feels personalized so you feel like you belong And we think those are some of the reasons why even current neighbors are getting more engaged at the moment. One of the data points you'll probably like is that current neighbors, if you look in the last year, have actually gotten more engaged. So we're seeing that kind of nice smile chart that we all love to see too.

Great. Thank you both. Thank you.

Thank you, Mr. Nowak. As a reminder, if you would like to ask a question, please press star one. The next question is from Brian Fitzgerald with Wells Fargo. Your line is open.

Thanks, guys. In the letter, you noted some benefits from improved advertising fill rates. Just wondering if you could talk a little bit about where you are in terms of the fill rates today and any sense for how budgets could expand as you continue to improve fulfillment, maybe in a similar vein. The engagement metrics, wow to neighbors, really nice uptick movement there. Wondering if you could talk a little bit about the key factors there and where you think those can go over time as well. And then maybe one last one is just, Don, we've heard from some other companies over the quarter that the housing market is really tight. Wondering if you're seeing any dynamic in terms of relation to a tight housing market to – uptick or look for certain services related to new houses or not being in new houses, those type of things.

Yeah. Okay. Maybe I'll start on the engagement, some housing market, new movers, and then I'll pass back to Mike on advertiser fill rates and so on. So on overall engagement, first and foremost, yeah, we're super pleased with that 32% year-over-year growth and wow, and the fact that the second quarter of engagement growth. We do continue to free growth drivers 1 of the top of the funnel. So you verified neighbors grew about 20% year over year in the same period. So it's good. We have new neighbors coming all the time, but then importantly, those neighbors are becoming more and more active. So it's a 2 for new neighbors and then current neighbors becoming more active. The other way that you can see that is the depth of engagement. The fact that WOW is a percent of total neighbors is at 52% globally. That groups five points year over year, and so that underscores that point that new neighbors are becoming more and more active overall. I'd also take you back to the chart that we showed in our investor day. If you recall, after three months, 75% of our mows are coming back. After six months, it's 65%, and after two years, you still see more than half of new neighbors to next door actively engaged. This is world-class, and I would remind everyone that even a weekly active is coming back on average four times per week. So the great news is once we get you from verified neighbor to mow to wow, your propensity to tip over to be a dow is very, very high. On the dow front, You know, what we're seeing there is beginning in 2020, or since the beginning of 2020, the three-month, the six-month, the 12-month, and the 24-month DAO cohorts have all seen DAO rise. And again, we view that a really great outcome of the investments they've been making on the product side. So that innovation on connections, broadly on active value community, the ad platform piece that's in content, and then the evolution of the feed experience. So that's what's driving that wow uptick. On the housing market, I mean, what tends to benefit for us is definitely new movers. That's one huge use case for Nextdoor. When you first move into a neighborhood, we are the way. You kind of find your feet. You find all of the service providers you need. We all know that when people move into a house, I think you spend something like, don't quote me, but over half of the total spend you'll put on a house you spend in the first 12 months of being in it. And so we're at the perfect platform to find from your neighbors who are the best service providers, for example. But even beyond that, we're also the way that you find your community. And we know that as people have become maybe a little bit more nomadic, maybe they've moved to a different place to work and so on, helping them find in real life their community is a huge part of why Nextdoor exists. and we're the only platform that can do that because we're all about that power of proximity. So maybe it's a running group, it might be a new mom's group, maybe it's a veteran's group, right? We can go across that whole landscape. So the good news is there's lots of growth overall, top of the funnel, lots of growth and engagement. With that, that drives a lot of impression growth and that drives revenue. I'll pass it to Mike to talk about how we fill against all that increase in supply.

So first I wanted to just talk about really the three types of levers we have to drive monetization and really for us it is and there's efforts behind each so the first and most important is as driving deeper engagement so it's creating Incrementally more supply so we can attract more advertisers, greater budgets, and have larger targeted audiences for those advertisers. The second is in supply optimization. So this is where fill rates come into play. It's where the mix of direct sold comes into play. It's making sure that we are serving the right ad at the right time to improve yields. for advertisers, which ultimately benefit us in the form of CPMs and benefit performance for the advertisers themselves. And then the third bucket that we think about is ways to drive monetization outside of the direct creation of supply. And so it's monetizing differentiated surfaces that we have, things like maps and groups, our classifieds surface, where there's... opportunity to drive value for the ecosystem, but doesn't necessarily require incremental expansion of supply. Let me come back to the second bucket, which is your question on fill rates. And this is one where we had tremendous success in 2021. And that is driving fill rates higher. Q4 is seasonally our best quarter, so there's a tremendous amount of demand for our inventory. But what we saw was increasing fill rates year over year in all of the quarters in 2021. And importantly, with the verticalization of our sales force, getting closer to the advertisers and knowing deeply the industries that they cover, it is It is allowing us to increase the mix of direct sold campaigns and not having to rely on backfill partners to fill unsold supply. We do have partnerships nonetheless, but it is a key metric for us to drive that percentage higher where we're proving real value to the advertisers directly and also where there is higher yields. So that's something we'll continue to focus on all three of those categories of leverage in 2022. But with continuing to refine the prioritization of each, and I'd say the biggest opportunity for us in 2022 is on the first bucket, which is driving higher engagement.

Thanks, guys. Thank you.

Thank you, Mr. Fitzgerald. There are no additional questions waiting at this time. I will now turn the call back to Matt Anderson. Excuse me, there is an additional question from Mark Mahaney with Evercore. Your line is open.

Okay, thanks. Let's see. I wanted to ask about relative engagement levels of international versus the U.S. Do those trends look relatively similar? Do the cohort trends that you've seen in international markets kind of follow the pattern that you saw in the U.S.? And then I have a follow-on, please.

Great. Thanks, Mark. We were wondering where you were. We wanted the question. So, I think actually positively right now, we see even better engagement outside the U.S., even though we think our engagement in the U.S. is already quite fast in class. And so if you look at the four markets that we really went after in 2021, so Canada, Australia, Netherlands, and UK, we saw almost 50% year-over-year WOW growth. But the way neighbors engaged, so 58% of neighbors are coming back weekly. And as I said, like our average weekly user is coming back up to four times a week. And I think actually in the UK, it's even a little bit more than that. Another data point I'd give you, in the U.K., we're now up to one in five households, and in London that is one in four. And that's important because London is such a big advertiser market that we need to have density there so we can do the sort of targeting that a particular advertiser needs. So we're really actually upbeat and excited about what we see going on outside the U.S. as a growth lever for kind of multiple years to come. In 2022, we're going to focus a little bit more deeply into Western Europe. So, France, Italy, Spain and Sweden, those are all very large ad markets. So we know if we can get the neighbors on board, there's definitely a high monetization ability and those markets are have been the same for us. In many ways. We see the same sort of neighborliness. The good news is everyone is a neighbor and we know that next door can be a global platform as, you know, international revenue today still only about 5% a little bit less of total. So it is, I would say more of a future growth lever in 2022 and even much more into 2023 and beyond. But we are going to tip our investments more strongly outside the U.S. in 2022, really because we're so confident in the growth that we're seeing in the U.S. Organic growth is still very, very strong, and we know there's a network effect. So now when we're in one in three households, there's just kind of a natural sustained growth rate that doesn't need kind of paid marketing and so on to keep it bolstered.

Okay. Thanks, Sarah. And then I want to ask you about connections. And so you launched this, and I know you talk about it in the shareholder letter. You know, you launched this. Can you talk about what impact that's had on engagement in the communities or, you know, where it's been launched so far? And then what's the use case, basic use case for enabling neighbors to connect with small and midsize businesses? Like how widely adopted do you think that will be?

Yeah, so connections rolled out in Q4 globally, but really towards the end of the quarter. So you're not seeing really any impact of it in the results that we just put in front of you, which I think is the good news actually, because we do expect it to start having an impact on engagement as we get into the back half here. Why is that? Well, one thing we know is that people you know or neighbors you know talking about things you care about, clearly very high on the engagement front. But the next highest is neighbors you know talking even about things you maybe don't care as much about. So humans value humans more than they do just pure interests. So we're leaning into that insight. and know that as neighbors connect to other neighbors, they're going to get a more personalized feed, and we think that just ups overall engagement. It feeds into our notification platform. Our notification platform is getting more intelligent, so it should have a really good flywheel. Where you're going, we want, of course, connections to not just be neighbor to neighbor. We want it to be neighbor to business, small business, midsize business, large brand, ultimately public agency, and then any other neighborhood organization. On the business front, what gets very interesting for the business is you now have someone actually putting their hand up to say, I care about this business. I trust this business. I want to make sure I'm hearing from them. So it almost opens up a direct line of communication. Not so much one-to-one, a bit more one-to-many, but one of the things we absolutely know on our platform is many of our neighbors are also business owners. So they're there because, of course, they want their own business, they want to make revenue, but they're also there because they care about their community. And I think what they find, when I talk to them more anecdotally, is the more they create a sense of community around their business, the more effective they become as advertisers. If I think about, let's talk about a small business, he's actually a farmer and his business is selling meat. He sells beef, lamb, and so on. But he spends probably the majority of his time talking more about what's going on in the farm, right? It's spring has sprung. It's lambing season. You know, here's the, you know, we're now whatever we're about to feed our cows. And it's about one in every five posts that he actually makes much more commercial. And that's been way more effective for him and his business.

That concludes the Nextdoor Q4 2021 earnings call. Thank you for your participation. You may now disconnect your lines.