Q4 2022 Nextdoor Holdings Inc Earnings Call
<unk> offers in conjunction with wild growth. We're also growing at the top of the funnel, indicating a clear opportunity for sustained growth today, we have almost 80 million verified neighbors on next door.
<unk> 22 was a year of product innovation and execution, we made substantial progress on deploying machine learning to enhance the neighbor experience drive engagement and platform growth.
In Q4, we advanced our email and push notifications by optimizing not just for sessions, but for sessions from neighbors, who are most likely to become long term users based on their activity.
Moreover, in the quarter, we laid the groundwork for a more personalized and more engaging next newsfeed by incorporating data points from neighbor interactions on the platform to capture interests and preferences.
This later work stream is still at an early stage, but we expect that it will become a prominent driver of neighbor growth and engagement in 2023 and beyond as our models become more powerful and work at greater scale and velocity.
In the year, we also significantly updated our app optimizing our user interface for the way, we believe nabors will derive the most value in the long term.
We placed the posting function front and center and simplified the navigation bar to highlight the highest engagement surfaces.
We also launched the discover surface to help neighbors find groups other neighbors and businesses nearby.
In Q4, we ended the year on a high note with the launch of the new and improved <unk> function and the events map within the location forward discover surface further leaning into our value proposition of local upscale with.
With these launches we are deepening engagement by creating more ways for nabors and organizations to interact engage and share useful content.
In addition, we continue to innovate and neighborhood vitality. Our recently launched transparency report highlighted a 35% reduction year over year and harmful content to just 0.2% of total user generated content or.
Our community is active over 210000 volunteer community moderators in neighborhoods around the world reviewed 92% of all reported content on reported content was removed at industry setting speeds with a median time of $5 one hours from time of report to removal.
This is an area, where we've used ml and AI to launch new features such as constructive conversations on appeal and improved features such as our kind of as a reminder.
We also continued to make progress on our multi year AD platform built our top priorities are to create a unified self serve option for customers of all sizes, but particularly for F&B and to prepare our proprietary backend AD server to host large scale customer demand.
On the revenue front 2022 growth of 11% year over year was certainly a tale of two halves, while we started off the year on a strong note with 32% year over year growth in the first half we saw advertisers start to spend with increased caution in the second half of the year as macroeconomic conditions became more.
Uncertain.
Q4 revenue declined 10% year over year to $53 million driven by reduced advertising spend from the financial services home services and real estate verticals and an overall reduction in spend per customer.
<unk>. However in 2022, we retained 90% of our top 50 customers, reflecting the sustained results advertisers are seeing on next door.
In Q4, we were focused on operational efficiency holding operating expenses constant year over year withheld head count approximately flopped over the past three quarters actively managing performance and selectively hiring in only the most critical areas product engineering ml and AI design.
<unk> sales.
Going into 2023, we remain focused on growing while in revenue with an emphasis on increasing productivity. We will continue to balance expense management, while ensuring that we are resourced to deliver on our long term product and go to market initiatives.
In closing with community and utility at the forefront our platform is a unique resource for nabors and businesses of all sizes.
We are as excited as ever about the product roadmap, we have in place to execute on our top three priorities growing our base of nabors and organizations deepening engagement and driving long term revenue growth above 2022 levels.
While there may be continued uncertainty ahead, we've a strong team in place and are well capitalized to execute against our strategy. We are committed to our purpose to cultivate a kinder world where everyone has the neighborhood to rely on and remain confident that our efforts will enable us to return to sustained revenue growth and margin improvement in 2012.
Three with that let me turn it over to Mike for more details on our financials.
Sarah and good afternoon, everyone as Sarah noted in Q4, while grew to $40 million. This growth reflects our strategy to build an active valued community for nabors and organizations can join connect contribute and transact with one another across over 305000 neighborhoods around the world and.
In particular, we are proud of the way.
We delivered an unparalleled combination of utility and community to both nabors and organizations in the quarter from working with agencies to support communities impacted by East coast storms in California flooding to helping neighbors organized local events and stay informed about them through timely relevant notifications.
Driving sales for global Toothpaste brand that ran a successful campaign promoting its products the day after our Halloween treat map.
Turning to revenue, while 2023 revenue grew 11% year over year to $213 million Q4 revenue was $53 million a decrease of 10% year over year.
In the quarter, we saw continued weakness in advertising spend particularly in three historically strong verticals financial services home services and real estate.
Advertisers have experienced uncertainty within their own businesses they have moderated spend.
That said, we are pleased to see that even in light of lower per customer budgets. Many advertisers are choosing to still spend on next door.
As I noted earlier, the fact that the vast majority of our top customers continued to spend in 2022 helps us helps illustrate that Banco economic volatility aside our value proposition to advertisers remains strong.
In addition to retaining customers in an uncertain environment.
We were also bringing new customers on board.
Strong growth in mid market accounts added, which drove 18% year over year growth in total accounts managed by our sales team to an all time high in Q4.
Bringing new customers to next door will remain a top priority in 2023.
Other areas of resilience in Q4 included the tech and telco healthcare and government verticals, which continues to grow year over year, because it's a reflection of a shift in sales strategy. We made earlier in 2022 to increase focus on recession resilient verticals and customers.
Consistent with our full funnel approach, we saw a healthy mix of spend across both top and bottom of funnel objectives with a continued trend towards direct response campaigns, which accounted for more than 60% of managed spend in the quarter.
<unk> also remained relatively stable year over year, another indicator of the value next door delivers.
Q4, <unk> declined 19% year over year to $1 33.
Our results progress made in growing sessions in supply, which outpaced advertiser demand in the period.
Q4, adjusted EBITDA loss was $17 million, representing a negative 32% margin.
The year over year decrease in adjusted EBITDA margin, primarily reflects deleveraging from the reduction in revenue and growth in personnel cost and hosting costs as neighboring engagement grows.
As with revenue our margin profile changed significantly over 2022, and the first half of our adjusted EBITDA margin was nearly constant year over year as revenue growth supported early hiring for critical new roles and.
In the second half the revenue decline led to margin contraction, even as we reduced operating expense growth by 28 points from the first half to the second half of the year.
We ended Q4 with $583 million in cash cash equivalents in marketable securities. This is after we repurchased $77 million of our class a common stock in 2022, allowing us to realize less than 1% dilution in the year.
We will continue to evaluate our capital allocation opportunities looking forward.
I'll end with our outlook.
Q1, 2023 revenue guidance is 46% to $47 million.
A year over year growth rate of minus 9% at the midpoint of the range in.
In the near term this reflects the continuation of the revenue trends we observed in Q4.
Turning to margin, we expect expenses to increase from Q4 to Q1, reflecting the hiring during 2022 as well as the seasonal increase in expense, primarily driven by payroll taxes.
As a result, we anticipate Q1, adjusted EBITDA loss to be minus 27% to minus $26 million.
For the full year 2023, and we expect to return to year over year revenue growth.
And margin expansion.
Given current variability in advertising budgets and lower forward visibility as a result, we're not providing full year revenue or EBITDA ranges at this time.
Overall, our Q4 results reflect key areas of progress, most notably a neighbor growth and engagement.
We remain highly focused on driving sustained while in revenue growth.
Thank you for joining our earnings call today today with that I'll turn it over to the operator for Q&A.
Okay.
Okay.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by two again to ask a question. It is star one.
Our first question is from Youssef Squali with <unk>. Your line is now open.
Hi, This is Robert Zeller on for Youssef, Thanks for taking the questions.
So first on the map I just wanted to ask what engagement looks like today given the recent launch you did in the quarter.
And then compare to where engagement was a year or two ago, and where you think it could be.
Five years from now.
And what level of revenue contribution.
You think you can reach through Matt and then.
I think in the letter you mentioned.
Youre most consistently engaged base of Nabors grew.
Im just curious what the use case is.
Four year, most consistently engage basically of nabors versus those that don't engage as consistently and what you think the differences and why thank you.
Great. Thank you probably do a lot in there I'll start and then I'll, let Mike certainly dive in if he wants to talk about and longer term view. So first foundation, we were very pleased with the year over year growth in Wow about 11% year over year growth of $40 million.
Of course per year, a 21% year over year growth.
Where we're seeing strength certainly in the U S.
85% of our U S verified members.
Came organically and so one thing that is definitely driving growth top of the funnel become dominant and engagement is the fact that people are just coming to the platform through word of mouth.
An incredible strong for next door and we can grow that rate organically, that's actually higher than what we saw in 2021.
Beyond that if you look internationally, you actually see even higher growth there so the engagement.
While growth internationally was 42% year over year, and 2022 that was three points higher than what we saw in 2021, so it's actually accelerating.
Beyond that I think you're also asking about engagement further down the funnel to one some of them come to US weekly Theyre coming back remember on average about four times a week for our weekly actives are very active over 50% of our daily impact and then from that question growth, which is the natural link out some questions also contains.
To accelerate so what we saw with the fashion growth as it was faster than wild growth, what's driving that it's some of what I talked about in my prepared remarks. So it's certainly a big investment and machine learning that's been our fastest growing team in 2022.
They are building models around areas like notification so the right notification to the right person at the right time its different for every single neighbor.
To make a big difference on how many people will come back to the platform.
Beyond that there are also digging into how do we continue to grow faster top of funnel. So as we put out invites whether they're digitally done maybe it's done via connections for guests who may now how do we make sure. It's a really smart invitation so that more people expect it and come back to the platform.
I think the next area that you went to was way out five years I'm going to let it might take that.
And then you asked what are the use cases for people who come back consistently. So if you look on the next door. The top use cases tends to start with recommendation either im looking for or I want to say how great. This was I was literally checking my next door before the call and someone else was asking for where you can find it.
Peso, which after this earnings call I might just wanted to do myself.
It's a very typical ask on the platform today, and we've seen over $60 million recommendations against 6 million business just to give you a sense of perspective.
Second reason people come to us to give them get that trusted information. That's why we work for example, with a lot of public agencies, Mike talked about our ability for example to be there in times of crisis like flooding snow storms and so on but also when things are going well to like some of the work we did last year around the big Jubilee in the UK.
And then finally I think the third area that I would call on the neighbors are often come to the platform for it.
They're there to to buy and sell so our for sale and free platform tends to be very engaging it's often a reason people come for the first time and they have that moment of the like where they are able to get rid of the couch get rid of the table that no longer give some joy why it works well in next door is number one more locals so youre not shipping things around the country people from mother nature.
Show up at your house or apartment.
Give or get that piece second we're very trusted so people feel that they can put.
Some time on the platform, where someone would come to your home and then finally, there is a really strong sense of community, we often see people putting stuff on for sale and free because it actually drives the community action as well like for example apparent putting.
Sports clothes.
Apart from that their kids have grown out of I have pulled a lot of soccer cleats in my life on next door. So those are the three big areas recommendations are really oriented around businesses secondly.
The trusted information and then thirdly that commerce that social commerce piece, so with that might go down if you want to make a comment on the five year look forward, yes, I just wanted to add on.
<unk> revenue contribution in <unk>.
Growth rates going forward.
Just a reminder, I mean, we're early and in building our AD revenue business and really the most important piece is driving that engaged base of weekly active users.
Them really utility on the platform that generates the supply that our advertisers are after and gives us the opportunity.
To to work with them in a larger way driving larger budgets and doing more with them on the platform.
For us Thats, the most important piece to driving long term monetization, but there are also several things that we are doing to help to accelerate the rate of revenue growth first and foremost is the large investment we're making in our own proprietary AD platform, allowing us to take advantage of our first party data, which will help to drive performance with advertisers ultimately.
Increasing our ROI and empty pms.
Really optimizing our supply as well so driving fill rate of supply we create.
Driving a greater mix of direct sold.
So with advertisers, which allows us to help them get the most out of the platform do things like shifts budgets from from brands to direct response, where warranted and things like that and then.
Really thinking ahead several years, it's creating new use cases and add surfaces that we can bring to the benefit of advertisers we've talked in the past about our discover tab or launch of events groups. There are many ways that we can we can interact both with our members.
And with advertisers and bring them real utility through the AD content.
Thank you Robert.
Thank you.
Our next question is from Eric Sheridan with Goldman Sachs. Your line is now open.
Thanks, so much for taking the questions maybe.
Maybe just coming back to the broader advertising environment I'd love to dig a little bit deeper in what youre seeing elements of spend per advertiser, how much of that you think is volatility driven by.
The overall mix of brand versus Dr. Existing advertiser spend and I think for a platform at your scale I think the view would be that maybe you would outgrow some of the overall industry churn. So the second part would be what are you seeing in the funnel of new advertisers and new budget coming to the platform and how should we be thinking about that new.
Advertisers funnel developing beyond just the macro volatility we might see over the next couple of quarters and as we get deeper into 2023. Thanks. So much.
Thank you Eric let me take that so I think first and foremost.
We are pleased with the performance, we're seeing in our ability to retain our top advertisers as we mentioned more than 90% retention of our of our top 50 advertisers and thats.
In an environment, where they are often reducing spend per campaign, but really this is an indication of the value of their seeing in working with us and reaching the neighbors on our platform.
And the second is really on driving new logos and so as you mentioned.
The important part where we're early in our journey and bringing new advertisers onto the platform. We have roughly 1000 advertisers across enterprise and mid market customers and then anywhere from 30% to 35000 SMB customers paying customers in any particular period. So there is an enormous runway in front of us on Brent building awareness.
<unk>.
Advertisers and getting them to leverage our platform.
The flip side of adding new logos is also the performance, we're seeing and an evergreen spend and so when you think about it we think about evergreen advertisers as those that are active on the platform five quarters in a row and then as the majority of our advertising so close to 60% evergreen spending a number that's continuing to tick up.
So this gives us.
A stronger base of advertisers more visibility into into the revenue going forward as well.
It's a key metric that we look to.
Uh huh.
Thank you.
Our next question is from Brian Nowak with Morgan Stanley . Your line is now open.
Great. Thanks for taking my questions, maybe Mike can you sort of talked about the <unk>.
The priorities for 'twenty three to be to really grow the advertiser base.
Just curious number one can you just give us a couple of examples of advertising verticals that you're most focused on that you think can really drive significant upside to the business in 'twenty. Three and then secondly are there are there any specific tools our AD offerings that have been resonating better with advertisers than others just as we are.
Trying to think through like what are the key competitive differentiators for next door is to compete in an increasingly competitive advertising market. Thanks.
Great. Thanks, Brian I'll start and then Mike can certainly add I think first of all in terms of the.
The verticals, Mike spoke to a wellness prepared remarks.
If you look at where we've seen strength in Q4 Tech and telco government and health care and this was really driven by a pivot midyear to look to verticals that we deemed more recession resilient, so, particularly health care and government of course, we have to drive brand awareness there so that they get to know us.
But im pleased with the momentum that the team has been making in terms of new logos in that space.
The question of why do people come to next or what advertisers comes next year I'm going to enter two ways because you've asked by format, but I also want to speak more broadly about what differentiates next door. So first and foremost we are of course the neighborhood network. We are all about local so the simple answer to that is our audience.
I'll give you a couple of examples when we talked about in our shareholder letter was right now out of Europe .
They wanted to target a unique audience of EV owners, and particularly the household decision maker, what we could see is that 26% of the neighbors in the UK on next door are more likely to own an electrical electric vehicle and so they were able to do a campaign that both had much improved visibility durability of the.
<unk> itself, but also the quality of the people willing to stop and spend time on the App was about 111% of the benchmark, so and not what I'm, telling you is we have a unique audience. We have a household decision maker and now we're able to add metrics that show. The advertiser. It's truly performance I'll give you a couple of other examples some talk with their new <unk>.
Mover kits.
It is a spot that we have created again, a very unique audience nextera of course knows when someone moves out because that's typically when they come to the platform or we can even see that they are changing and updating their address because we have location data. This.
This is the eighth consecutive quarter in a row, where we've sold out that new mover kits and we tend to find there is a lot of competition for it.
Finally, I will talk to treat map so Mike started to talk about more native ization.
AD spots within the App itself. So it feels like it's just a card in the feed but are there surfaces like discover that now we can be really put forward with location elements like a map I'm curious that dog treats sponsored or treat map and again saw three forex more positive brand sentiment during the peer.
Where they were on the street map again why were they come into next door. Because we are a place where you can find that unique audience.
<unk> and pet owners.
Finally in terms of the types of formats that we're seeing we saw all the formats you would expect video carousel.
We have a format around dynamic local advertising, where we know that when you put something that's more local if you take a national brand message down into local it is I think around 58% more performance than when you just stick with the overall national brand.
Bioethanol or whatever so we are finding ways to really differentiate ourselves to where I started we're all about local all about the neighborhood to unique audience, we see vast proportion of our audience to be the household decision maker or the influencer of purchases and then we're able to cut those audiences into very unique places.
That they are bringing advertisers across many different verticals.
Great. Thank you.
Thank you.
Once again, if you would like to ask a question. It is star one on your telephone keypad.
There are no additional questions. So I'll pass the call back over to Sarah for the CEO .
Wonderful. Thank you so much Jason and thank you everyone that joined us in and ask questions. Today. We always appreciate your time and support so in closing, while we beat Q4 revenue and EBITDA guidance and definitely both momentum in areas like mid market sales. We know we have work to do to return to revenue growth and navigate through a period of more uncertain advertise.
Their demand, but as I just add to Brian next door is a unique platform. We are the only one doing vocal at any sort of scale users largely come to us organically three out of four in this particular period.
Real neighbors at real address that we've also taken the time to invest in vitality, we believe we differentiate ourselves.
When we invest in this arena, it's good for the business as well as just being good for the world.
That neighbors want to engage more when they feel safe within their neighborhood. We also know that brands want to spend more with us when they can see brand safety.
We are laser focused on growing Wow and revenue first we need to continue to beat the drum on the importance of local for nabors for businesses and agencies.
We need to build brand awareness to make sure that that utility and community is coming across second we will continue to invest in platform development initiatives that grow engagement things like maps discover events a mile on personalization neighborhood state and third and finally, we want to continue to iterate quickly on our monetization.
<unk> capabilities for advertisers of all sizes, making sure that next door is the AD platform that you've come to know.
But as you spend your money with US we can track it and measure it so you're getting exactly what you want.
And then finally in terms of near term revenue and EBITDA variability, we're very focused on returning to revenue growth and margin improvement in 2023, while also investing in the long term opportunity of our global hyper local neighborhood network. So with that thank you. So much for your time and we look forward to talking to you through the quarter.
We do have one more person that queued up for questions.
Go ahead, Johnny we'd love question bring it on.
Jocelyn who from Evercore. Your line is now open.
Hi, Catherine Hi, Thank you for taking my question I.
I really appreciate it I guess is there any update you can give them like maybe more specifically internationally because I feel the wild growth seems to be stronger internationally than the U S.
We didnt members right I guess, just kind of talk about the momentum there and what's your game plan for.
International rollout here like wish Mark you will put in most focus on.
Yeah, great. Thank you Doug I appreciate that.
So as you know next door is in 11 countries around the world.
And you're right that when you look at overall while growth at the moment. It was it remained stronger internationally, partially because we have many countries in neighborhoods that are just getting going we saw 42% year over year, while growth in 2022 internationally not actually accelerated from 2021 by about three points.
What's driving it internationally is a lot of the same of what you see in the U S. So it certainly when we invest in areas like ml and notification of the global investment. So it has positive ramifications everywhere.
Similarly on the fashion side, we also see that our pacing of Samsung outside the U S.
In terms of investments our core markets that we've gone after and beyond the U S or the U K, Canada and to some degree Australia.
Western Europe kind of remains a little bit more and.
And early nascent stages for us.
And then within region, we continue to do things that can drive a particular country. For example, we did a partnership with Toronto FTE Football club.
New that they were up and coming and we knew that the World Cup was potentially going to end up there and a couple of years and that was a great partnership that our country team came across that puts us front and center.
Really important community for us so our neighbor of the match has been a really interesting way for them to bring attention to nexstar and to drive growth. So it's a combination I would say a broad platform investments that benefit the whole world as we roll them out combined with in that country level investment that can really help a.
Your city or a particular set of neighborhoods come alive.
Yes, and actually one more point before we leave.
International which I think is important today, 21% of our Wow is international but only 5% of our revenue is international. So again, if you think about the future opportunity as we are able to kind of reach scale bring advertisers on the platform globally Theres, a lot of pent up or latent opportunity sitting.
Outside the U S at the moment.
Thank you so much I guess, maybe on the event and that was zero.
Is there any update what is international rollout at all.
Of new countries nothing to update on this call. Thank you all.
Oh, and then snap Oh, sorry.
Yes, so on the events side in Q4, we launched both our re architected events, but then importantly events map. So really this is about our discover surface and making sure that beyond your news feed you can land on the surface like discover and immediately see everything around you that can be of interest.
So events are certainly one of those elements, where it's great to be able to look at your neighborhood up closer or even over a broader local area to say, okay. What's happening around me of course, that's also surface, where you can find the businesses that have been recommended around you and even groups and what other neighbors are up too so just.
Think of it as one step in the broader native ization of map surfaces, some of which might be one day.
At a time when you might pick a particular theme like Halloween and some of them may be ongoing where we'd always have them like our help map.
It makes sense.
Yes.
So thank you and it is available internationally. If you were asking was events map specifically available internationally, yes, it's a it's a broad based global rollout.
Got it thanks.
And we have another question from Ron Josey with Citi.
Your line is now open.
Hi, This is James Michael on for Ron Josey.
What role does next door plan is for sale and free offering is there a greater monetization opportunity here and then how does user shopping behavior on next door differ from other platforms is integration with Nash also play a role in cancer and Commerce and has an overall platform shop ability. Thank you.
Sure. So maybe I'll start on the prevailing free as a reminder of what the opportunity is but then I'll, let Mike take the monetization piece. So on the earlier question. We get asked why do people come to next door. So beyond recommendations beyond kind of the given get help we absolutely see for selling pre as a as an area that tends to bring up.
A lot of users to the platform, but then also continue to engage the current users on the platform and we see a significant dollar amount put fresh onto the platform. Every single month. We also view this as effectively our foray and future into social commerce, because what does social commerce, all about it's about being influenced by that.
Commerce, that's around you buy people that you Trust next year is the perfect overlap of that people tend to have very high trust and their neighbors and what their neighbors are either selling or recommending them, but it also comes at a local level, which again no one else can really deal with that.
I'll pass it to Mike as we think about future monetization chairman so to date, our monetization is really just about the value to engagements that the personnel and a free.
This drives so our marketplace experience is differentiated and that all of our neighbors in the platform are.
A real Amarillo address there if it's a high level of trust there.
Certainly obviously, a proximity to components to exchanging goods and services and importantly is the social capital aspect of helping out people in your in your neighborhood.
As a result, it has been one of our highest use cases and really is a way for us to do to drive.
Sessions and and engagement on the platform.
Which we're able to monetize those as those impressions through our general ad products.
We have AD units and are for sale or for a product today and are working to make those AD units more contextual. So say for example, you are searching for a dining room table that Youre. Also then served an AD for a new dining room table with with our AD partners.
So there is an opportunity there to do that more directly with our own technology as well as working with with partners to accelerate our path and and driving more utility.
That service.
That's helpful. Thank you.
Once again, if you would like to ask a question. It is star one on your telephone keypad.
There are no questions. This concludes the conference call. Thank you for your participation you may now disconnect your lines.
Thank you.
Yeah.
Everyone else has left to come.