Q4 2023 Nextdoor Holdings Inc Earnings Call

Matt: www.nextdoorhldg.com Nextdoor Hldg, Good afternoon. Thank you for attending the Q4 2023 Nextdoor Earnings Call. My name is Matt, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end.

Yeah.

Okay.

Okay.

Good afternoon. Thank you for attending the Q4 2023 next door earnings call. My name is Matt and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call up 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 your host John Williams with next door. John. Please go ahead.

Matt: If you'd like to ask a question, please press star 1 on your telephone keypad. I'll now have to pass the conference over to our host, John Williams from Nextdoor. John, please go ahead.

John Williams: Thank you, Matt. I'm John T. Williams, Head of Investor Relations. Good afternoon, and thank you for joining us to review Nextdoor's fourth quarter and full year 2023 financial results. With us on the call today are Sarah Friar, Chief Executive Officer, Nirav Tolia, Chief Executive Officer Designate, and Matt Anderson, 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.

Thank you, Matt I'm, Johnny Williams head of Investor Relations. Good afternoon, and thank you for joining US to review next doors fourth quarter and full year 2023 financial results with us on the call today are Sarah Friar, Chief Executive Officer, <unk>, <unk>, Chief Executive Officer designate Matt Anderson, Chief Financial Officer. During this call we may make statements.

<unk> 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 a discussion of the material risks and other important factors that could affect our actual results. Please refer to our SEC filing.

John Williams: Our actual results could differ materially from expectations reflected in any forward-looking statement. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the 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. Reconciliation of these measures to their most directly comparable GAAP financial measures can be found in the Q4 2023 shareholder letter released today. With that, I'd like to turn the call over to Sarah.

It's available on the Sec's website, and 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 GAAP financial measures can be found in the Q4 2023 shareholder letter released today with that I'd like to turn the call over to Sarah. Thank you John T. Our Q4 results demonstrated renewed strength, we added a record number.

Sarah J. Friar: Thank you, John P. Our Q4 results demonstrated renewed strength. We added a record number of organic verified neighbors for the second straight quarter and ended the year with more than 88 million verified neighbors, growing 13% year over year. P4 WOW grew to $41.8 million, up 5% year-over-year and 3% sequentially.

Organic verified neighbors for the second straight quarter and ended the year with more than $88 million Barrick by neighbors growing 13% year over year.

Before WILDBERRY to $41 8 million up 5% year over year and 3% sequentially.

Sarah J. Friar: We expect this sequential growth in WILE to continue into Q1. Users remain active, and engagement is high on our platform. Impression growth was strong. Session depth, which reflects the number of ad impression opportunities during each user session, increased by 36% year-over-year and accelerated versus Q3, ending the year at a record level. Our growth algorithm is simple.

We expect this sequential growth in well to continue into Q1.

Users remained active and engagement is high on our platform impression growth with strong fashion depth, which reflects the number of AD impression opportunities during each user sessions increased by 36% year over year and accelerated versus Q3, ending the year at a record level.

Our growth algorithm example continued user and engagement growth.

Sarah J. Friar: Continued user and engagement growth, new advertiser growth, boosted by our self-serve capabilities, increasingly durable advertiser retention as more demand is delivered via our proprietary ad server, and a reduced cost base to better enable both growth and positive free cash flow. Our progress wasn't limited to user growth and engagement metrics. We're leveraging AI and machine learning across our platform in a variety of ways, from using our local knowledge graph to help businesses reach their target audiences to improving notifications and optimizing ad delivery to enhancing platform vitality. For example, as we noted in our recently released 2023 Transparency Report, 26% of neighbors used the revised language suggested to them by generative AI to make their posts more constructive. And neighbor feedback suggests very high levels of satisfaction with our AI-based kindness reminder.

New advertiser growth boosted by our self serve capabilities increasingly durable advertiser retention as more demand is delivered via our proprietary AD server and then.

Our reduced cost base to better enable both growth and positive free cash flow.

Our progress wasn't limited to user growth and engagement metrics, we're leveraging AI and machine learning across our platform in a variety of ways from using our local knowledge graph to help businesses reach their target audiences to improving notifications and optimizing ad delivery.

<unk> platform vitality.

We noted in our recently released 2023 transparency report, 26% of Nabors used the revised language suggested to them by generative AI to make their posts more constructive and neighbor feedback suggests very high levels of satisfaction with our AI based kind of reminder, so it's very clear that even at this early.

Sarah J. Friar: So it's very clear that even at this early stage, the AI tools we've developed are having a measurable impact on our user experience, driving positivity. We also made progress delivering advertiser value and reducing advertiser effort. For the full year, we retained 90% of our top 50 customers.

States. The AI tools, we've developed are having a measurable impact on our user experience and experience driving positivity.

We also made progress delivering advertiser value and reducing advertiser effort.

For the full year, we retained 90% of our top 50 customers.

Sarah J. Friar: We saw continued strong performance from mid-market and SMB customers, many of whom have begun to see the benefits of our owned and operated ad platform and are benefiting from the performance optimizations we can now make. We get a lot of questions about our specific vertical exposure. For clarity, in FY23, our top three advertising verticals were home services, retail, and tech, and telecom, though the contribution from each can vary greatly from quarter to quarter and year to year. We continue to decrease our vertical concentration and have seen increasing contributions from smaller but faster growing emerging verticals like healthcare, government, and nonprofits, which have more than doubled their share of the pie over the last two years. On the technology side, we made ongoing progress on our transformative Nextdoor ads platform. In mid-2023, we achieved our goal of having 100% of ads from SMB advertisers served via the Nextdoor ad server, and we're pleased to say that almost all of our self-serve mid-market customers are now fully migrated.

We saw continued strong performance from Midmarket and SMB customers, many of whom have begun to see the benefits of our owned and operated AD platform and are benefiting from the performance of optimization, we can now make.

We get a lot of questions about our specific vertical exposures for clarity in FY 'twenty, three or top three advertising verticals for home services retail and tech and telecom, though the contribution from each can vary greatly from quarter to quarter and year to year.

We continue to decrease our vertical concentration and have seen increasing contributions from smaller but faster growing emerging verticals like health care and government and nonprofit which have more than doubled their share of the pie over the last two years.

On the technology side, we made ongoing progress on our transformative next our ads platform.

Mid 2023, we achieved our goal of having 100% of ads from F&B advertisers Sir.

Next our AD server and we're pleased to say that almost all of our self serve mid market customers are now fully migrate it.

Sarah J. Friar: We expected this move to start to tip our mid-market business more and more towards self-serve, and that is happening. This should drive new revenue opportunities but also improve advertiser performance and revenue delivery. Our ad platform is the foundation for delivering advertiser value and increasing ARCA growth through improved revenue yield. We're now beginning to leverage our unique local knowledge graph and help advertisers deliver increasingly relevant and personalized ads to neighbors on our platform. Simply put, we believe it's a game changer for Nextdoor and will prove to be a must-buy solution for advertisers of all sizes. Switching gears, as many of you have already seen, our board authorized a $150 million increase to our existing share repurchase program.

We expect that this move to start to tip, our mid market business more and more towards self serve and that is happening.

This should drive new revenue opportunities, but also improved advertiser performance in revenue delivery.

Our ads platform is the foundation for delivering advertiser value and increasing ARPA growth through improved revenue yields.

We're now beginning to leverage our unique local knowledge graph and help advertisers deliver increasingly relevant and personalized that nabors on our platform.

Simply put we believe it's a game changer for next door and will prove to be a must buy solution for advertisers of all sizes.

Switching gears as many of you have already seen our board authorized a $150 million increase to our existing share repurchase program.

Sarah J. Friar: Matt will have more to say about this in his remarks, but this is a clear demonstration of our confidence in our business and opportunity. Our focus on bringing new neighbors to the platform, growing engagement, and building powerful solutions for advertising customers hasn't changed, nor has our approach to making these things happen. Our Q4 results are a demonstration of how we continue to evolve and improve, an approach that will continue in 2024 and beyond. And now, I'd like to take a moment to discuss our recent announcement that I'll be stepping down as the CEO of Nextdoor. We've made great progress over the last five and a half years, scaling the business, tripling the number of verified neighbors on the platform, raising capital, taking care of our people, and going public, while always remaining true to our purpose and mission.

We'll have more to say about this in his remarks, but this is a clear demonstration of our confidence in our business and opportunity.

Our focus on bringing new neighbors to the platform growing engagement and building powerful solutions for advertising customers Hasnt changed nor has our approach to making these things happen. Our Q4 results are a demonstration of how we continue to evolve and improve and approach that will continue in 2024 and beyond.

And now I'd like to take a moment to discuss our recent announcement that I'll be stepping down as the CEO of next door.

We've made great progress over the last five and a half years scaling the business tripling the number of verified neighbors on the platform raising capital taking care of our people and going public well always remaining true to our purpose and Michelle and I will be a neighbor forever and I'm grateful for the opportunity to lead such a <unk>.

Sarah J. Friar: I will be a neighbor forever, and I'm enormously grateful for the opportunity to lead such a wonderful group of people here at Nextdoor. Having said that, I'd like to introduce, or reintroduce for the first time, Nirav Tolia, as Nextdoor's incoming CEO. Nirav is well equipped to lead Nextdoor going forward. He co-founded the company and is a current board member, served as CEO prior to my joining, and knows it well.

Wonderful group of people here at next door.

Having said that I'd like to introduce or reintroduce for some near up calling them as next door and incoming CEO narrow, but it's a well is well equipped to lead <unk> going forward. He co founded the company and has a current board member served as CEO prior to my joining and knows it well he and I have had a very close working.

Matt: He and I have had a very close working relationship, and with a growing user base and strong advertiser momentum, the time is right to put the company back into his hands. Nirav is here with us today and will participate in our Q&A session, and I will be staying on into Q2 to support him and the team and to ensure a seamless transition. I've also signed our 10-K, which was filed earlier today. And with that, I'll now turn it over to Matt. Thank you, Sarah, and good afternoon, everyone.

Yep.

The growing user base and strong advertiser momentum the time is right to put the company back into his hands.

<unk> is here with us today and will participate in our Q&A session and I will be staying on into Q2 to support him and the team and to ensure a seamless transition I've also signed to our 10-K, which was filed earlier today and with that I'll now turn it over to Matt.

Thank you Sarah and good afternoon, everyone.

Matt Anderson: Q4 revenue of $56 million grew 4% year over year. WOW grew sequentially, and record sets in depth drew a stronger-than-expected impression growth. We expect both of these trends to continue into Q1. From a revenue perspective, self-serve customers continue to grow and now contribute more than 40% of total revenue. Additionally, revenue from our home services vertical grew 16% year-over-year in Q4, a recovery from the year-over-year decline we experienced in Q3. However, growth in self-serve customers and revenue continues to outpace growth from our managed accounts. This demonstrates our progress driving adoption of our Nextdoor Ads Manager, which serves as our self-serve interface for advertisers of all sizes. Further, as of mid-February, 100% of Nextdoor Ads Manager impression demand is serving on our Nextdoor Ads survey.

Q4 revenue of $56 million grew 4% year over year.

<unk> grew sequentially and record session desk drove stronger than expected impression growth.

We expect both of these trends to continue into Q1.

From a revenue perspective self serve customers continued to grow and now contribute more than 40% of total revenue.

Additionally, revenue from our home services vertical grew 16% year over year in Q4 recovery from the year over year decline, we experienced in Q3.

Growth in self serve customers and revenue continued to outpace growth from our managed accounts.

This demonstrates our progress driving adoption of our next door as manager, which serves as our self serve interface for advertisers of all sizes.

Further as of mid February 100% of next door ads manager impression demand serving on our next door AD survey.

Matt Anderson: Given the timing during the quarter, this will not immediately impact you on revenue. However, it does represent a key milestone as we work to deliver durable advertiser value and growth in the quarter ahead. Q4 RPU of $1.33 was stable year-over-year.

Given time and during the quarter. This will not immediately impact Q1 revenue.

It does represent a key milestone as we work to deliver durable advertiser value and growth in the quarter.

Q4, <unk> of $1 33 was stable year over year.

Matt Anderson: We were encouraged by two particularly notable trends in Q4. First, mid-market advertisers increased their average spend levels by more than 125% year-over-year, signaling a return to healthier budgets among this set of customers. Second, neighbors continue to increase the amount of content they view in each session. As Sarah noted, impression opportunities during each session increased by 36% year-over-year. Importantly, this growth occurred without any changes to our ad load. However, at the same time, these areas of progress were offset by mixed performance from certain enterprise advertisers and verticals, including financial services and travel. Q4 adjusted EBITDA with a loss of $14 million, representing a negative 25% margin and a 7% improvement year over year. This margin improvement reflects lower personnel-related expenses following the completion of our cost reduction plan in Q4 and continued reductions in marketing expenses at neighbor, acquisition, remains strong. We ended the quarter with $531 million in cash, cash equivalents, and marketable securities and zero debt.

We were encouraged by two particularly notable trends in Q4.

Mid market advertisers increase their average spend levels by more than 125% year over year signaling a return to healthier budgets amongst this set of customers.

Nabors continued to increase the amount of content they view in each session.

As Sarah noted impression opportunities during each session increased by 36% year over year importantly, this growth occurred without any changes to our outlook.

At the same time.

These areas of progress were offset by mixed performance from certain enterprise advertisers and verticals, including financial services and travel.

Q4, adjusted EBITDA was a loss of $14 million, representing a negative 25% margin and a seven percentage point improvement year over year.

This margin improvement reflects lower personnel related expenses following the completion of our cost reduction plan in Q4.

And continued reductions in marketing expenses as neighbor acquisition.

It remains strong.

We ended the quarter with $531 million in cash cash equivalents and marketable securities and zero debt.

Matt Anderson: With that in mind, and as Sarah mentioned earlier, we are pleased to announce a $150 million increase in our share repurchase program, as well as our intention to immediately begin to deploy the remaining $23 million on our prior authorization. You see two primary benefits from this plan. First, we believe our shares are significantly undervalued and see a compelling potential return on our capital. Second, instituting this buyback program allows us to minimize share count dilution.

That in mind and as Sarah mentioned earlier, we are pleased to announce a $150 million increase in our share repurchase program as well as our intention to immediately begin to deploy the remaining $23 million on a prior authorization.

We see two primary benefits from this plan first we believe our shares are significantly undervalued and see a compelling potential return on our capital.

Second instituting this buyback program allows us to minimize share count dilution.

Matt Anderson: Now, on to our outlook and financial guidance. For the full year of 2024, we expect our revenue growth rate will exceed our 2023 revenue growth rate, and our adjusted EBITDA margin will improve by approximately 10 percentage points year over year. For Q1, we expect W.O.W. to increase quarter over quarter, driven by continued strong organic growth in verified neighborhoods. We expect revenue to be in the range of $50 to $51 million, and we've seen increasing momentum as the quarter has progressed, and we expect suggested EBITDA to be a loss of approximately $20 million. This increased loss relative to Q4 is primarily attributable to the normal seasonal decline in revenue from Q4 to Q1.

Now onto our outlook and financial guidance.

For the full year of 2024, we expect our revenue growth rate will exceed our 2023 revenue growth rate and our adjusted EBITDA margin improved by approximately 10 percentage points year over year.

For Q1, we expect to increase quarter over quarter, driven by continued strong organic growth and verify neighbors.

We expect revenue to be in the range of $50 million to $51 million and we are seeing increasing momentum as the quarter has progressed.

And we expect adjusted EBITDA to be.

The loss of approximately $20 million.

This increased loss relative to Q4 is primarily attributable to the normal seasonal decline in revenue from Q4 to Q1.

Matt Anderson: We continue to see leverage from lower personnel-related expenses. However, this is offset by a sequential increase in business and neighbor market initiatives that we do not expect to scale meaningfully beyond Q1. Now, before we close, a few additional notes on our guidance. We expect further increases in session depth will yield strong growth and add impression opportunities, enabling full year 2024 revenue growth above 2023 levels. Additionally, through a combination of our newly increased share repurchase program and our recently implemented net share settlement for our employee RCUs, we expect to limit share count dilution over multiple years. Finally, and most importantly, we entered 2024 in a good position, with a streamlined cost structure, a healthy balance sheet, neighbor growth momentum, increasing depth of engagement, and progress against our ad platform milestones. As Sarah noted earlier, our growth algorithm is simple.

We continue to see leverage from lower personnel related expenses.

However, this is offset by a sequential increase in business and labor market initiatives that we do not expect to scale meaningfully beyond Q1.

Now before we close a few additional notes on our guidance.

We expect further increases in the second death will yield strong growth in AD impression opportunities, enabling full year 2020 for revenue growth above 2023 levels Adil.

Additionally, through a combination of our newly increased share repurchase program and our recently implemented net share settlement for our employee our skus.

We expect to limit share count dilution over multiple years.

Finally, and most importantly, we enter 2024 in a good position.

With a streamlined cost structure healthy balance sheet neighbor growth momentum increasing depth of engagement.

<unk> against our ads platform milestones.

As noted earlier, our growth algorithm to simple user and engagement growth advertiser growth and retention and a reduced cost base.

Neeraj: User and engagement growth, advertiser growth and retention, and reduced cost. We remain committed to driving growth and positive free cash flow while delivering value for neighbors, advertisers, and shareholders in 2024 and beyond. As we wrap up our prepared remarks, I'll turn it over to Neeraj for his final word. Thanks, Matt, and good afternoon, everyone.

We remain committed to driving growth and positive free cash flow, while delivering value for nabors advertisers and shareholders in 2024 and beyond.

As we wrap up our prepared remarks, I will turn it over to Derek for final words.

Thanks, Matt and good afternoon, everyone.

Nirav Tolia: I'm delighted to return to Nextdoor. I love this company, and I'm excited about the fantastic opportunity ahead of us. I want to first and most importantly acknowledge Sarah for her inspired leadership and incredible contributions to our growth and progress over her five plus years as our CEO. Thank you, Sarah.

I'm delighted to return to next door.

Love This company and I'm excited about the fantastic opportunity ahead of us I want to first and most importantly acknowledged Sara for her inspired leadership and incredible contributions to our growth and progress over her five plus years as our CEO. Thank you Sarah.

Nirav Tolia: My plan for the next few weeks is to listen and learn. Our purpose and mission here at Nextdoor are unchanged. And while we'll naturally see some refinement and evolution in our product strategy, moving forward, we'll also focus on continuing to scale the benefits of our ads platform and a more personalized neighbor experience. Both of these efforts are amplified by AI and are just starting to be visible in our results. I'm really looking forward to engaging with all of you in the coming weeks.

My plan for the next few weeks as to listen and learn our purpose and mission here at next door are unchanged and while we'll naturally see some refinement and evolution in our product strategy moving forward. We will also focus on continuing to scale the benefits of our ads platform and a more personalized neighboring experience. Both of these efforts are amplified by AI and are just starting to be visible in our results.

I'm really looking forward to engaging with all of you in the coming months. Thanks for joining our earnings call today I'll now turn it over to the operator to begin Q&A.

Operator: Thanks for joining our earnings call today. I'll now turn it over to the operator to begin Q&A. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If, for any reason, you would like to remove that question, please press star followed by 2.

Yeah.

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 your question. Please press star followed by two again to ask a question for Starwood.

Operator: Again, to ask a question, press star 1. As a reminder, if you are 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 now open. Thanks so much for taking the question. And I'll echo thanks, Sarah, for all the insights and time and help with the business in terms of understanding it over the last couple of years. Maybe just stick with one big picture theme for my question; then I'll turn it back.

As a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking a question we'll pause here briefly as questions are registered.

First question is from the line of Eric Sheridan with Goldman Sachs. Your line is now open.

Thanks, so much for taking the question and I'll, let go thanks, Sarah for all the insights and time and help with the business in terms of understanding it over the last couple of years.

Maybe just sticking with one big picture theme for my question, then I'll turn it back just to users youre seeing a lot of momentum coming out of 2023 and implying that momentum continues into Q1 can you talk a little bit about what you're seeing broadly in terms of the user funnel and conversion of users into engagement coming out of last year.

Eric Sheridan: Just users, you're seeing a lot of momentum coming out of 2023 and implying that momentum continues into Q1. Can you talk a little bit about what you're seeing broadly in terms of the user funnel and conversion of users into engagement coming out of last year, and how you think about the mix of investments that are key to keeping that momentum and some of the execution pieces as you look out into 2024? Thanks so much.

And how you're thinking about to make some investments that are key to keeping that momentum and some of the execution pieces as you look out into 2024. Thanks so much.

Sarah J. Friar: Absolutely. Thanks, Eric. And it's certainly been fun getting to know you better.

Absolutely Thanks, Eric and that's been certainly getting to know you better.

Sarah J. Friar: On the user front, diving in right at the top of the funnel. So first of all, we've had really sustained organic verified neighbor growth for now for a second consecutive quarter hitting new records. And that's effectively all of the VMs that are coming today are coming in that organic way, effectively at no cost. Why is that sustainable?

On the user front diving in right at the top of the funnel for first of all we've had really sustained organic verified neighbor Kraus for now a second consecutive quarter hitting new records.

Effectively all of the vehicles that are coming in today are coming.

And that organic why effectively no cost.

Why is that sustainable well, if you remember even prior to that a lot of the investment we have done recently in areas like digital on vacation.

Sarah J. Friar: Well, if you remember, even prior to a lot of the investment we've done recently in areas like digital invitations, we have always seen a baseline of adding about 2 million verified neighbors to the platform. So we continue to expect the base to continue to grow at that rate. But then the new investments that we have in areas like digital invites us to be strong again in Q1 and as we go through 2024. In terms of engagement, though, it's not just about getting neighbors to the platform, but it's obviously showing up for them and making sure that they're getting value when they arrive. And so we've been driving contributions sometimes through features like events, for example, for selling free recommendations, like how do we keep connecting that loop between neighbors and businesses, for example.

<unk> always seen a baseline of adding about 2 million verified neighbors.

The platform. So we continue to expect that pace to continue to grow at that rate, but then the new investments that we have in areas like digital and buy to be strong again in Q1 and I could go through 2024.

In terms of engagement, though it's not just about getting neighbors to the platform, but it's obviously showing up for them and making sure that they're getting value when they arrive and so we've been driving contribution from clients that through features like for example for cell and three recommendations like how do we keep connecting that look between nabors and businesses.

For example, this is.

Sarah J. Friar: This is a place where we've done a lot of investment in ML, as you know, to make sure that first of all, when you come to Nextdoor, you're getting more and more of a personalized feed, but also from a notification standpoint, that we're able to send you a notification at the right time to the right neighbor that draws you back into the platform itself. Our WOWs have stayed very, very engaged. On average, a weekly active comes back about four times a week.

The place, where we've done a whole lot of I've done a lot of investment in ml as you know well make sure that first of all when you come from extra or you're getting more and more a personalized feed but also from a notification standpoint that we're able to send you a notification at the right time to the right neighbor that draws you back on platform and so the app itself.

Our Wow stayed very very engaged on average.

Weekly access comes back about four times a week, so and in fact, our wild with our ratio has stayed in that kind of 50% ish type range and we feel very good about that.

Sarah J. Friar: So, in effect, our WOW to DOW ratio has stayed in that kind of 50%-ish type range, and we feel very good about that. Beyond that, in terms of other areas of investment as we go into next year, it's all about how do we help people discover and discuss. How do we help them continue a commercial journey of finding that business that they want to work with?

Beyond that in terms of other areas of investment as we go into next year. It's all about how do we help people discover and discuss how do we help them continue to have commercial journey of finding that business that they want to work with and then finally, we are investing in communities. We do see this as both a new way to bring in new verified neighbors, but also with the gift.

Sarah J. Friar: And then finally, we are investing in community. We do see this as both a new way to bring in new verified neighbors but also to give people a better sense of who or what their neighborhood is. Sometimes it might be the building that you're living in.

People, a better sense of who or what their neighborhood at sometimes it might be the building that you're living and sometimes it might be called the fact, sometimes its a whole DMA and so making sure. We can flex real time messaging is something that we rolled out in Q4, and we're already starting to see a good pickup because now of course people can do simplified messaging within a building or.

Sarah J. Friar: Sometimes it might be a cul-de-sac. Sometimes it's a whole DMA, and so we make sure we can flex. Real-time messaging is something that we rolled out in Q4, and we're already starting to see a good pickup because now, of course, people can do simplified just messaging within a building, or they can go deeper into the newsfeed and experience all that Nextdoor has to bring. Thank you. Thank you for your question. The next question is from the line of Ron Josie with Citi. Your line is now open.

They can go broader in the newsfeed and experience all of the Nexstar has to bring.

Thank you.

Thank you.

Thank you for your question.

Next question is from the line of Ron Josey with Citi. Your line is now open.

Ron Josie: Great, thanks for taking the question, Sarah. Yeah, well, you'll be missed. Neeraj, welcome back. I want to ask about your commentary on the ad server now that 100% of U.S. SMBs, I think, are using the ad server. And I think, Sarah, you might have mentioned the game changer. Just talk to us about the benefits here.

Great. Thanks for taking the question I'm sorry, yes.

You'll be missed.

Welcome back I wanted to ask about your commentary on the AD server now at 100% of U S. Smbs I think or are using the AD server and I think Terry you might have mentioned the game changer, just talk to us about the benefits here is this would help to drive the adoption of self service ads overall and while we're on monetization here maybe help us understand.

Sarah J. Friar: Is this what helped drive the adoption of self-service ads overall? And while we're on monetization here, maybe help us understand some of these verticals. So home services returning to growth, I think, was pretty notable. I'd love to hear your thoughts and those of the drivers there.

Some of these vertical so home services returning to growth I think was pretty notable would love to hear your thoughts as to the drivers there. Thank you.

Sarah J. Friar: Thank you. Yeah, yeah, absolutely. So, as you know, we've been in investment mode with our ad server, and we feel like we're now really starting to cross the chasm, getting a large number of overall advertisers on Nextdoor onto our own owned and operated ad tech stack. Why is that important?

Yeah, Yeah, absolutely. So as you know we've been in investment mode with our out server and we feel like we're now really starting to cross the chasm and getting a large number of overall advertisers on next door onto.

Our on owned and operated AD Tech stack why is that important it means number one and we can leverage our own proprietary data number two it allows us to better optimize on things like the latency because we're not having to do a call outside of our own platform into someone else's.

Sarah J. Friar: It means, number one, we can leverage our own proprietary data. Number two, it allows us to better optimize on things like latency because we're not having to do a call outside of our own platform to someone else's. And then third, it starts to allow us to do better performance optimization and also better targeting. And that's before we even start to build new ad formats and so on. So everything should speed up from here. As you noted, it's been a journey where we started with SMBs, so the midpoint of last year was when SMBs were fully on us, both being able to create campaigns using Nextdoor Ad Manager and have it served through Nextdoor's ad server.

Third it starts to allow us to do better performance optimization and also a better targeting and that's before we even start to build new AD formats and so on so everything should speed up from here as you noted it's been a journey, where we started with SMB at the midpoint of last year as one Smes were fully honor, both being able to create campaigns using <unk>.

Our AD manager and haven't served through next year at server and you can see from both our Q3 and now our Q4 results the growth rates that we're seeing in F&B.

Sarah J. Friar: And you can see from both our Q3 and now our Q4 results, the growth rates that we're seeing in SMBs say that the ad server is working. That's great news. The work of Q4 was to move the mid-market, but particularly the self-serve portion of the mid-market, over, and that is now also completed. Why that's important is that we've always thought that this would be a big new opportunity for us to go out to mid-market advertisers who want to just do something easy, self-serve, but couldn't do that previously on Nextdoor. So it effectively unlocks a new segment of the market for us.

The AD servers work him that's great news.

Our work with Q4 with some of the mid market, but particularly the self serve portion of the mid market over and that is now also complete at why that's important is we've always thought that this would be a big new opportunity for us to go out to mid market advertisers, who want to just use something easy self sir.

But couldn't do that previously on Nexstar. So it effectively unlocks a new segment of the market for us of course of the journey continues the focus for the rest of 'twenty four is our managed clients.

Sarah J. Friar: Of course, as the journey continues, the focus for the rest of 24 is our managed clients, who can be large enterprises, they can be ad agencies, or they can be mid-market. And you'll hear us more and more begin to talk about the platform as self-serve and managed as we look forward. But beyond that, you have to think about verticals as well.

Who can be large enterprises that can be AD agencies are they can be mid markets and youll hear us more and more begin to talk about the platform of self serve and managed as we look forward.

Beyond that you asked I think about verticals as well.

Sarah J. Friar: So we are seeing some green shoots in the home services vertical. Matt said so in his prepared remarks. Home services grew 16% year over year, which is good to see. I think other verticals that have remained strong for us are areas like retail. Tech and telco have remained very, very strong, and we've, of course, been investing in new verticals like healthcare, government, nonprofit, and professional services. They're smaller still, but they're becoming more mighty as we get some reps under our belt, get some good case studies, and the sales team really knows how to go out and sell them. It's still tough flooding in areas like financial services and travel as well.

So you are seeing some green shoots in the home services vertical and Matt said it in his prepared remarks Im services grew 16% year over year, which is good to see other verticals that have remained strong for us are areas like retail tech and telco has remained very very strong.

And we are of course being in Boston, and new vertical like health care government and nonprofit professional services. There. So theyre smaller cell, but they are becoming more maybe as we get some rocks under our belt and get some good case studies and the sales team really knows how to go out and solve them.

Flooding in areas like financial services.

As well.

Sarah J. Friar: We do expect recovery there, and the good news is that the advertisers who are in those segments have tended to stick around. When they do have spend, they bring it back to next door.

We do expect recovery there and the good news is the advertisers who are in those segments tend to stick around when they do have friends. They bring it back to next door. However, they haven't had a lots of fast relative to where they were maybe two years ago. So that remains a big focus for US is both keeping has advertisers happy so when they have money they will come back to next door.

Sarah J. Friar: However, they haven't had a lot to spend relative to where they were maybe 2 years ago, so that remains a big focus for us to keep those advertisers happy. So, when they have money, they'll come back next door, making sure that the current advertisers continue to spend more as the environment improves, and then bringing on new logos, bringing on new segments, life, and market self-serv. All in all, it should give us some growth as we go through 2024. Hence Matt's guidance that we expect 24 revenue to grow faster than 23 revenue. Yeah, I'll just add 2 things.

Making sure that the current advertisers continued to spend more as the environment improves and then bringing on new logos, bringing on these segments and markets I'll start all in all that should give us some belt I think out through 2024, hence our guidance that we expect 24 revenue to grow faster than 'twenty three revenue, yeah, and Ryan I'll just.

Matt Anderson: 1st, on the self-serve side, as we really think about how to measure success and progress there, I think 1 of the things that's most exciting is overall growth in advertisers really pleased with the new logos in the quarter, and that's being driven primarily from self-serve mid-market customers. So it's one key signal of the progress we're making. It's an area that gives us confidence into 2024. And then from a vertical perspective, I think Sarah hit all the key points.

Two things first on the software side as we really think about how to measure success and progress there I think one of the things that's most exciting is.

Overall growth in advertisers really pleased with the new logos in the quarter and that's been driven primarily from self serve midmarket customers. So it's one signal of the progress we're making a scenario that gives us confidence into 2024, and then from a from a vertical perspective, I think Sarah hit all the key points. The one thing I would add that also is really attuned to and seeing progress.

Matt Anderson: The one thing I'd add that we are also really attuned to and seeing progress on is increasing diversification. We've talked about emerging verticals like healthcare over the last couple of quarters, but as a reference point, that's now as big as financial services from a vertical perspective. So that shows how far we've come.

One is increasing diversification, we've talked about emerging verticals like health care over the last couple of quarters, but as a reference point. That's now is the biggest financial services from a vertical perspective, so that shows how far we've come and certainly as the market evolves and the services. We still believe is endemic to the fact that we're diversifying in that way at that scale is something that we think positions.

Matt Anderson: And certainly as the market evolves, the kind of services we still believe are endemic, but the fact that we're diversifying in that way at that scale is something that we think positions us relatively well in 2024 versus a year ago. Thank you, Sarah. Thank you, Neera.

That's relatively well in 2024 versus a year ago.

Thank you Sarah.

Operator: Thank you. Thank you for your question. The next question is from the line of Brian Fitzgerald with Wells Fargo. Hi, this is Stan Velikov for Brian.

Thank you. Thank you for your question.

The next question is from the line of Brian Fitzgerald with Wells Fargo. Your line is now open.

Hi, This is the SUNS vehicle for Brian Thanks for taking our questions.

Brian Fitzgerald: Thanks for taking our questions. First, can you remind us what the normal seasonality in net member additions is? Is it fair to say that 2023 was an outlier to the general pattern observed in prior years?

First.

Can you remind us what the normal seasonality in the net member additions is it fair to say that 26 basis. It was.

Outlier to the general partner of theirs.

In prior years.

Stan Velikov: And second, session depth continues to outpace WOW growth. How much runway do you think there is left for AI to drive this metric over the longer term? Yeah, Stan, you mentioned seasonality. I had a little bit of trouble hearing you.

And then second.

That continues to outpace <unk> growth.

How much runway do youre seeing there is left for AI to drive this metric over the longer term.

Yeah.

Yes, Stan you mentioned seasonality a little bit trouble hearing you would you mind clarifying which metric you're referencing.

Matt Anderson: Would you mind clarifying which metric you were referencing? Seasonality in, Oh, wow. Basically, that's a new member. Got it.

Ah seasonality.

Oh Wow basically.

New member additions.

Matt Anderson: Yeah, thanks. So, from a user perspective, we see more of our seasonal moves happening into a quarter, and specific events happening throughout the quarter. One thing, as we look at Q4, is that we've been able to counteract what have been seasonal declines in activity around core holiday periods, for example, between Christmas and New Year's. I think the most important point for the quarter, though, is what Sarah mentioned, which is the sustained and accelerated growth in new neighbor acquisition. That ultimately helps to neutralize any inter-quarter seasonality we see now as we look ahead to Q1, as we mentioned in our comments, we continue to see some nice boosts there. Sometimes that's affected by weather and other external factors, but broadly speaking, there's less seasonality as it relates to our user base, and that's why we continue to be focused on things like top of funnel growth. And then on the Sessions app, let me take that. So, thank you for calling it out. We're really pleased with what we saw in session depth. It grew 36% year over year. What is driving session depth?

Got it yes, so from a user perspective, we see more of our seasonal moves having intra quarter specific events happening through to the quarter. One thing as we look at Q4 is we've been able to counteract what had been seasonal declines in activity around core holiday periods for example between crisp.

Listen Here's I think the most important point for the quarter, though is with Sarah mentioned, which is the sustained and accelerated growth in new neighbor acquisition that ultimately helps to.

Neutralize any intra quarter seasonality, we see now as we look ahead to Q1 as we mentioned in our comments.

Continue to see some nice goose, there sometimes is affected by weather and other external factors, but broadly speaking, there's less seasonality as it relates to our user base.

That's why we continue to be focused on things like the top of funnel growth.

And then on the question, let me take that so thank you for calling it out we're really pleased with what we saw in questions that grew 36% year over year, what is driving question Beth.

Sarah J. Friar: A big part of it is making sure that when a user hits the new feed, that first and foremost, they're seeing relevant articles, relevant posts, and relevant content to them. And so this is a really excellent place for us to be investing in both AI, to be able to do a deep dive on content tagging and so on, and to do it at a significantly faster and cheaper rate than what we may have been doing previously with ML and actually using just human tagging. It also allows us to keep pushing more and more relevant content to the top of that new feed. So that if someone who's coming back, perhaps frequently, multiple times a day, maybe coming back multiple times a week, is again, continuing to see relevant content in their new feed.

A big part of it is making sure that when a user hitting a speed, but first and foremost theyre seeing relevant articles relevant pulse relative content.

And so this is a really excellent place for us to be investing in both AI to be able to do a deep dive on content packaging and so on them to do it at a significantly faster and cheaper rates.

What we may have been done previously with ml I'm actually using just human pack and it also allows us to keep pushing more and more relevant content to the top of that news feed so there's someone who's coming back perhaps frequently multiple times a day, maybe coming back multiple times a week is again continuing to see relevant content in their news feed.

Sarah J. Friar: It is also important that that same relevance is true in our notifications. And this is a place where we have put a lot of work in the last, you know, call it three to six months to go back to notifications and make sure that we are getting the right notifications for the right person at the right time. We're starting to do a little bit more experimentation with Digest.

And also is important to have that same relevance is true in our notification and this is a place where we put a lot of work. That's in the last you know call. It three to six months to go back to notifications and make sure that we are getting the rate modifications for the right person at the right time, we're starting to do a little bit more experimentation with digest so.

Sarah J. Friar: So thinking back to rather than just new and trending notifications, areas like events, areas like for sale, and free, where we have incredible richness of content, but getting in front of the user can be hard on a platform that's tended to be a little bit more about serendipitous discovery. So we're doing a lot of work in that arena too. Of course, AI really helps with all of this, but you have to have the data.

So rather than just new and trending notification areas like Nevada, where areas like porcelain free where we havent credible richness of content, but getting in front of the user can be hard and apart from the tended to be a little bit more about serendipitous discovery. So we're doing a lot of work in that arena too of course I read.

Really helps in all of US you have to have the data we own the local knowledge graph unless we think there's an incredible differentiator for nexstar as we look forward.

Sarah J. Friar: We own the local knowledge graph, and this we think is an incredible differentiator for Nextdoor as we look forward. Great. Thanks, Matt. Thanks, Sarah. And Sarah, thanks for all the insights over the past few years. You'll be missed. You're welcome.

Great. Thanks, Matt Thanks, Sarah.

So thanks for all the insights over the past few years youll be missed.

Youre welcome. Thank you.

Sarah J. Friar: Thank you. Thank you for your question. There are currently no further questions registered, so as a reminder, it is star 1 on your telephone keypad. There are no additional questions waiting at this time, so I'll pass the call back to the management team for any closing remarks.

Thank you for your question.

There are currently no further questions registered so as a reminder to star one on your telephone keypad.

Okay.

There are no additional questions waiting at this time, so I'll pass the call back to the management team for any closing remarks.

Thank you, Matt and thanks, everyone for joining us we're super pleased with the quarter that we just put up strong year over year growth across all of our key metrics, while up 5% on growing sequentially revenue up 4% and <unk>.

Sarah J. Friar: Thank you everyone for joining us. We're super pleased with the quarter that we just put up showing year-over-year growth across all of our key metrics. Wow, up 5% and growing sequentially, revenue up 4%, and a second straight quarter of our record organic VMs being added. As you saw, there are lots of levers that we can pull at all stages of the user funnel. At the top of the funnel, new users joining us organically is at the highest rate ever. Mid-funnel, we're starting to see more, we continue to see neighbors be active weekly, and then at the bottom of the funnel, a session debt number of 36% year-over-year. So lots of places to really drive overall growth. We didn't talk about it much on this call, but we did see strengths in areas such as international, our ad agency partnerships, and, of course, the push in areas like Neighborhood Faves continues to increase the number of claimed business pages, which is really fertile ground for upselling advertising. And we expect to see verticals like financial services and real estate begin to improve, hopefully, as the overall macro backdrop improves.

Second straight quarter of record organic beyond being added.

As you saw there's lots of levers that we can pull at all stages of the user file top of funnel.

Joining us organically is at the highest rate ever mid funnel, we're starting to see more we're continuing to see nabors be active weekly and then bottom of funnel.

36% year over year, the logical place to really drive overall crop.

We didn't talk about it much on this call, but we did see strong scenarios such as in an asphalt.

Our AD agency partnerships and of course, the course in areas like space continues to up the number of claims business pages, just really fertile ground for up selling of advertising.

We expect to see vertical by National services, and real estate begin to improve hopefully as the overall macro backdrop as a provider.

Sarah J. Friar: AI, we've talked a lot about it on this call. We know it's really top of mind for all of you, generally speaking. Next door is the local knowledge graph.

We've talked a lot about it on this call. We know it's really top of mind for all of you generally speaking next door is the local knowledge graph, we have incredibly while legal data high intent audience real people and neighborhoods everywhere and then finally, we are laser focused on growing while in revenue from here Brandon.

Sarah J. Friar: We have incredibly well-labeled data, a high-intent audience, and real people in neighborhoods everywhere. And then, finally, we are laser-focused on growing wow and revenue from here. Brand awareness and top of the funnel product development efforts are playing a really key role in bringing new advertisers to the platform, including that self-serve mid-market group. We're investing in our platform. We're lucky enough to be building a modern ad tech stack right at the point in time when a platform shift is happening, so we can embed all of the goodness of AI right from the get-go. And then, finally, we want to keep iterating on improving our monetization capabilities for advertisers of all sizes.

Brand awareness and top of funnel product development efforts are playing a really key role in bringing new advertisers to the platform, including laptops or mid market grip.

And factoring in our platform.

Lucky enough to be building, a modern tech stack right at the point in time on a platform shift is happening. So we can embed all of the goodness of AI right from the get go and then finally, we want to keep iterating on it.

Proving our monetization capabilities for advertisers of all sizes.

Sarah J. Friar: So, with that, thanks for all your support through the years for me, too. NIRV will be taking the reins as we move into our next earnings call, but I will be here to make sure that the transition is seamless and continue to work with the team. And, of course, as you all know, I will continue to believe in being green. Be a good neighbor, and hopefully, I'll see you out there in the neighborhood. That concludes the conference call. Thank you for your participation. You may now disconnect your line.

Thanks for all your support through the years for me too.

We'll be taking the reins as we move into our Q1 earnings next earnings call, but I will be here to make sure that the transition of seamless and continue to work with the team and of course as you all know I wont continue to believe green being a good neighbor and hopefully I'll see you out there in the neighborhood.

That concludes the conference call. Thank you for your participation you may now disconnect your lines.