Q2 2022 Nextdoor Holdings Inc Earnings Call
Store platform for my own recent conversations with CMO I know there is a significant and enduring demand for the kind of engaged audiences and unique hyper local targeting that next door provides marketers also value the utility aspect of next door because of drive intent other neighbors have done by our mindset.
<unk> are typically the household decision maker.
Weekly active users are Wow grew 26% year over year to approximately $37 million, we're seeing durable engagement trends amongst our most active users.
In Q2 over 50% of weekly active users were active daily across all regions growth in total sessions accelerated 10 points quarter over quarter.
These trends show that our focus on engagement through the introduction of new machine learning models or increased personalization more engaging notification a simplified user experience and welcoming platform initiative is working.
With the progress we've made on engagement. We are now shifting more of our product focus to new neighbor growth today, we have over 75 million verified members on the platform and we're just scratching the surface of our global total addressable market.
In Q2, we made significant progress across our international markets and in the UK. For example, we're now one in four households.
Creasings nearly one in three in London while.
Turning to next door in times of need Nexstar also remains highly relevant and major societal moment.
In the quarter, we topped bringing together more than 15 million U K N neighbors in real life through the Big lunch campaign celebrates Queen Elizabeth Platinum Jubilee.
On the Advertiser front next door helps brands reach real neighbors based on their interests and location engaged neighbors and our high utility hi, contextual setting and convert neighbors and the customers are.
Our value proposition for advertisers growth as we improve our measurement and targeting capabilities supported by our first party proprietary data.
Made renovation is a great example of a customer who use next door to exceed their cost per lead goal and also importantly achieved 10% below their cost per lead on other paid channels.
More broadly meeting advertising measurement companies Foursquare and Oracle. Most recently shared that next are outperforming the industry benchmarks across a variety of metrics, including cost per visit and view ability and this is true across vertical.
We're continuing to develop our on platform to deliver increasing value to advertisers of all sizes. In Q2, we expanded an extra asked all U S small and mid sized customers, giving them a broader access to AD formats and inventory more compelling visual options and calls to action and the comprehensive batch.
For it so they can track metrics and performance of their AD campaign.
We also continued to develop our proprietary AD server to improve AD relevance and performance for advertisers and the app experience from neighbors.
The right ads served at the right time, the right neighbor is highly useful content.
We recognize the need to adapt and adjust with changing market conditions that one of our long term strategy and priorities remain the same to grow our base of Nabors and organizations increase engagement and drive sustained revenue growth as we enter the second half of 2022, we're sharpening our focus to our highest <unk>.
<unk> product and go to market initiatives that we believe will contribute most meaningfully to wow and revenue growth.
One of these high impact initiatives if connection in.
In Q1, we fully launched connections and in less than six months, 20% of daily active users now have at least one connection. We're also starting to see that connections have any meaningful impact on contributions on next door more contributions leads to a more vibrant ecosystem.
We're now working to enhance the value of connections by mentioning neighbors to contact at the right moment, such as the new neighbor onboarding or after making a connection.
This enables members to connect with more of the people they want to hear from and it also enables us to provide more relevant suggestions for neighbors, who you may know our guests to insights.
We increased daily contacts things I'm, 90%. This quarter. This will support further new neighbor growth in the second half of the year.
Our purpose has never been more importantly, our platform is a unique resource for nabors and businesses. We are as excited as ever about the product roadmap ahead, we have a strong team in place and we are well capitalized with $660 million on the balance sheet to execute against our strategy.
There may be volatility ahead, but we are as committed as ever to the work. We do at next door and we remain confident in our long term growth opportunities with that I'll turn it over to Mike for our financial highlights.
Thank you Sarah and good afternoon, everyone as noted wildly to approximately $37 million with well growth outside the U S exceeding 50% year over year for the second straight quarter and growing nearly 100% in the last two years.
Total revenue was $55 million, an increase of 19% year over year.
<unk> been through the current environment, we saw resilient demand for many of our advertisers and I'll highlight a few of the areas.
One is our ability to deliver for advertisers across a range of campaign objectives. In Q2, we have campaigns ranging from H&R block's third year. They make every block a better brand campaign to file those conversion campaigns to reach these subscribers.
For the on demand streaming service Siloed next doors high intent audience with a great fit given the number of new movers in nabors drilling through think about streaming services.
Although our customers objectives are generally balanced between performance and brand awareness. We are currently seeing a slight trend towards performance focused campaigns, which comprised over 60% of managed spend in the quarter.
We believe this will serve us well as the industry navigates continued macroeconomic headwinds and advertisers find the right balance between brand and performance focused objectives.
Our second area of strength was for mid market advertisers, who continue to demonstrate outsized growth on our platform.
Emerging group of advertisers that combination of self serve and managed generally spends more than F&B, but less than enterprise.
And a third area of resilience came from the core verticals that are holding up well, including home services and recovering vertical such as travel.
We did see ongoing softness in financial services and emerging softness in retail real estate and quick serve restaurants.
This was reflected in our guidance.
Overall, though we believe our efforts to increase advertiser diversity better position us in periods of volatility.
In fact in the past two years, we've nearly doubled our customer base.
Q1, global <unk> declined 6% year over year to $1.48, a result of stronger while growth relative to revenue growth.
Over quarter ARPA increased 6%.
Adjusted EBITDA for Q2, with a loss of $20 million, representing a negative 30% margin, 37% margin the year over year margin change reflects our first half focused on hiring to ensure we have the right team in place to deliver against our product roadmap and build momentum into 2023.
We ended the quarter with $666 million in cash and marketable securities.
Otherwise the share repurchase program in June and repurchased 10 $5 million of our class a common stock in the second quarter.
We continue to buy shares in July and have now repurchased a total of $27 million over a quarter of the authorized amount.
Once our trading window reopens, we plan to resume repurchasing shares.
I'll end with our outlook.
We are adjusting our full year 2022 outlook to $220 million to $225 million, which is a year over year growth rate of 16% at the midpoint of the range.
Given current macroeconomic trends, we're anticipating a tightening in advertiser budgets, we expect mid market advertiser demand to remain an area of particular growth.
We are shifting smbs to the new ads are going to experience and expect this to result in some variability in near term revenue.
We are now forecasting our full year 2022, adjusted EBITDA margin of 28 negative 28%.
The change in margin relative to prior guidance at the flow through of lower revenue offset in part by a reduction in operating expense growth in the second half of 2022.
For Q3, 2022, we're expecting revenue between 53 and $55 million a year over year growth rate of 2% at the midpoint of the range and an adjusted EBITDA loss between $20 and $19 million.
Our Q2 results reflect both progress on remaining potential.
Our current guidance reflects what we believe to be the most prudent approach given that advertising demand remains relatively more uncertain than in prior quarters.
Our long term opportunity remains intact, and we believe we have the talent and resources in place to emerge from the current cycle and an even stronger position.
Thank you for joining our earnings call today with that I'll turn it over to the operator for Q&A.
Later.
Pardon me 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 one.
As a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question.
Our first question is from the line of Eric Sheridan with Goldman Sachs. Please proceed.
Thanks for taking the questions maybe two if I can first Sara I think for those who are less familiar with the business of the business model is you are still scaling into your growth can you give us some sense of what degree of visibility you have into advertising spend as you think about the back part of this year or into the first part of next year.
Across somebody uses the verticals or some of the size of advertisers you've talked about just so we better understand what the pipeline looks like from an advertising standpoint, and then one more in the weeds. The variability you called out on moving SMB advertisers to your AD serving platform can you give us a little bit of a sense of what that might translate into.
In terms of variability of revenue if we took out to the second half of the year. Thank you.
Yes.
Alright. Thank you Eric So first of all in terms of our business model. So we are as Patrick today with Mike always reminds me, we're certainly too young in our journey to turn away from that we are so small relative to the size of the digital AD sector added to the pace of growth of the digital AD sector, which even in more turbulent times.
I would remind everyone is still growing in 2022.
Terms of visibility what we looked at our first of all with our direct sales model for enterprise and mid market there isn't inherent ability for that to turn off budget.
Intra quarter or going into a new quarter and so that's one of the reasons final wants to make sure that we're staying prudent.
Think about guidance and changing market condition and our guidance right now based on the visibility that we have from our customers today and it does factor in their response to a broader macro environment.
Our implied Q4 guidance based on the full year, and then Q3 is a little bit wider and that's again, making sure we're leaving for families that give us a little bit more flexibility at the same time, we recognize that broadly speaking for our competitors. There's really three factors going on there is macroeconomic.
Foreign policy and privacy changes.
And then of course, there's diversifications and your competitors.
It's certainly a focus for next door on the privacy front keep in mind that next door is a first party proprietary platform, where our users are in a locked in state when they come to the platform. So we are not dropping cookies as you go around the WAC to follow ons and who is who they are without our targets.
Or to kind of create more scale.
So to that extent.
With these changes <unk> not had a material impact on our platform and in fact that proprietary first party data how do we think is a huge.
Long term assets for us to think about how to monetize or to utilize at the moment.
Hi.
On the diversifying of fans.
The surge of new competitors again next year is very differentiated from a lot of the rack for social media. It widened neighbors comes next door the Comverse for community and then for utility, but sometimes they come first for utility and then they felt community regardless, they're not typically comment for entertainment purposes and so.
Our goal is to keep driving into that utility community messaging positioning and ultimately to drop them down.
And that our neighbor and making sure that they keep coming back and that's what gets us excited about the <unk> monetization standpoint.
In terms of the F&B.
Question that you asked.
One of the big shift in Q2 was the shift connector adds I'm really excited about what <unk> can.
Can mean for small businesses.
First of all it's easy to use and self serve it gives a much broader access to our full range of AD formats beyond just local deals or local sponsorship that put some other things, but I have even a large advertiser like Walmart or home depot. It gives them many more visual options and whats that new ways to do.
Calls to action and again, what we're trying to do is simplify their journey. They are not sophisticated marketers and so we want to make it as easy as a few clicks and you're ready to go to get up to neighbors to the people that actually surround.
And then of course, it gives them a much more comprehensive dashboard to look at how they're performing and overtime will contextualize that too with businesses like me what are they doing why are they performing better.
In terms of the volatility that we mentioned, it's more to do with as we iterate on the platform when something is brand new.
We don't have everything that we want to be able to offer them today and we have $3 4 million small businesses, who claimed the pace. So we have a very fertile group of businesses to go back and sell into but of course some of them want different features added and so as we add those features we just expect it makes it a little harder to predict.
The revenue worthwhile. So again, we want to be prudent on that front as we think about guidance.
Thanks, so much sir.
Thank you. Thank you.
Yeah.
Our next question is from the line of Eric Sheridan with Goldman Sachs. Please proceed.
And I think he just had Eric.
Mark Mahaney has dropped again to ask a question press star one.
Yeah.
The next question is from the line of Blake Mahaney. Please proceed.
[laughter], Okay. What are you oftentimes get confused with Eric Sheridan, maybe that's what happened.
Alright.
Let's see.
I wanted to ask Sir you made a comment in the in the middle in your prepared comments about how you want to kind of.
Shift over towards now growing users you have been pretty happy with the level of engagement that you've seen increased engagements amongst your users. So could you just a little bit on how do you grow.
Wow Waa use from here is there a new strategy or is it just leaning more into strategies you've had in the past it looks like the W.
While growth slowed in the decelerated in the June quarter. So just talk about what's the what's what's the change here and I mean, how do you how do you plan to revert and getting back to the wild growth again. Thank you.
Thanks, Thanks, Mark So first of all on the lab growth grew 26% year over year to $37 million. So we're pleased with that growth but of course, we always know that we can do more what we have been very focused on is how do we bring people from joining were registering the verified neighbor download files to being a monthly or weekly.
And I think we're very happy with that progression that we've seen to give you a little bit of a sense of that first of all 50% of our Wow are down. So we know that once we get into being we clearly you have a very high propensity to come back on a daily basis.
Talk about our most engaged Pac man, so the folks who truly are more daily and habits grew 50% year over year. So absolutely we are really enjoying hospitable finding utility on the platform.
Talked about global fashion, So that's a moment where people return back.
That also accelerate that on a quarter over quarter basis 10 points and then the final thing I would say just overall, while that gives us a lot of confidence is that our international low growth continued to be over 50% year over year. So the good news is our focus on bringing down the funnel engagement is working on.
That's now playing letting us let's go back to top of funnel or how do we get net new neighbors because once we get you know are very confident that we're going to get you to be hyper engaged so the change I know I'll call. It a change in strategy, but more of a shift back to the top of funnel will be driven by first of all remember.
Last month that we've made and talked a lot about connections in my prepared remarks, but that's an infrastructural way for us to be able to use variety on the platform itself and if you are coming in as a neighbor if youre willing to pay for your contracts. Maybe if you join you later when you make a connection that gives us now a way to reach out to the people that you know.
A neighborhood that we know are not currently on next door doesn't make a warm introduction like please come they are because the market is already on our platform.
The second thing we can also do with connections and more and more we're connecting businesses and so we see businesses either way to also invite neighbours, we already see this intuitively happening where the local plumber may ask someone that he or she has just done a job for it to do a recommendation on next door. So we just want to make that more.
Intense intentional over the longer term the other areas that we're looking at in terms of top of funnel growth. Our partnership you saw us announce our partnership with Microsoft for content during the quarter. We have some of the richest months dynamic real time local content and there are a lot of platforms out there.
We want that sort of context too.
To make their own ecosystem, where by brand. So that's an API that we can be more comfortable with and then we have other partnerships in place like Samsung for example, where we are now testing for the first time for me preloaded on devices and then of course, there is S. C O which is another area that we believe is very fertile ground for next door knock on a lot.
I actually wanted to focus on engagement in the first part of the year, but now are coming back to longer term lockers like SCO as we turn into the second half of 2022 and then the final thing I would say, it's just brand awareness, we're still generally not as well known as you would think amongst neighbors and definitely not as well known as a platform.
For F&B through to large enterprises. So we have work to do to continue on the brand awareness front and that's why you see us do either a partnership like a big lunch Eden project in the U K, we just find.
Something about Toronto.
And Canada and here in the U S. You'll see us continue to do more ways to get neighbors, both from online to offline and we havent neighbor months in September .
Great. Thank you Sara.
Thank you.
Thank you.
Once again to ask a question press star one.
Again to ask a question press star one.
There are no additional questions waiting at this time, so I will pass the conference over to Sarah Friar for closing remarks.
Thank you so much and thank you everyone for your time and support while we delivered on our revenue and EBITDA expectations about momentum in areas like the mid market. We know we have work to do to continue to grow next door through a challenging global macro environment. As we discussed today, we are laser focused on growing one.
<unk> and revenue and all of our product roadmap and go to market execution focus there for the second half of 2022.
First we need to continue to beat that drum unimportance of local next door at both neighborhood building that brand awareness that I just talked to mark about that.
Second we will need to continue to invest and are welcoming platform initiatives, where we think next door is leading edge. So that ranges from how we moderate.
During a real neighbors are on the platform and you saw the stats about how well, we do with things like view ability, when where and third party.
Look at us from an advertising perspective.
Real neighbors on next door and then of course, how we keep conversations constructive and forgot that.
Third and finally, we will continue to iterate quickly on our monetization capabilities for advertisers all five it so as I talked about we want to keep iterating on our next or AD platform for F&B and bolstering our AD serving platform to better tracking and measurement.
While we grow revenue, we also want to focus on leverage getting back to year over year margin improvement in Q4, while still investing in the long term opportunity of our global hyper local neighborhood network.
That will end the call today and of course, we're here for any follow up from the investors. Thank you so much.
That concludes today's call. Thank you for your participation you may now disconnect your lines.
Okay.
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