5 min read

Nextdoor SPAC

Nextdoor SPAC

Nextdoor is a an up-and-coming social media network, that's going public via SPAC merger with Khosla Ventures Acquisition II Co (KVSB). This is an interesting one, that Cathie Wood seems to be buying up. In fact, by my count, she's bought over 2M shares this past week. This is in addition to her PIPE investments in the company. So what is Cathie seeing here?

What is Nextdoor?

If you have time, you can check out their investor presentation here on YouTube (it's a 45 min video). If not, let me summarize.

Founded in 2011, Nextdoor is a niche social network for neighbors to discuss local events, rate local businesses and exchange goods and services.

Their purpose is "to cultivate a kinder world where everyone has a neighborhood they can rely on".
Nextdoor July 2021 Investor Presentation, pg. 10

I'm not a user, (so I could be wrong) but I see it as a marriage between Facebook and Yelp.

So who is the userbase of Nexdoor? Apparently 1 in 3 U.S. households currently have the app downloaded. So, there are a lot of people of all demographics on this app. Consequently, there has been a lot of toxic behavior that Nextdoor had to formally address. But, looking at the bigger picture, this is clearly a successful app that took 10 years to build.

What is Nextdoor's Moat?

Nextdoor July 2021 Investor Presentation, pg. 14

From their SPAC investor presentation, Nextdoor believes their unique proposition is real people, hyperlocal proximity, trusted information, local perspective, and instant distribution. I can see how this is very different from other platforms like Instagram or Facebook (for now).

Nexdoor believes there is a high barrier to entry in this niche market; which is why it took them 10 years to build it out. According to Vinod Khosla, the SPAC sponsor, it is difficult to achieve critical mass due to the inherent challenges of bringing together online and offline networks. Basically, they don't believe Facebook will have much success with Neighborhoods.

What is Facebook Neighborhoods?

Quite honestly, just a copy of Nextdoor. This shouldn't surprise anyone at this point, given it's happened with Snapchat, TikTok, and Clubhouse so far. Facebook Neighborhood is only available in Canada right now, but will begin to roll out to select US cities soon. I don't see it on my app yet.

Facebook Neighborhoods integrates within the platform

Will Facebook have success with this? It's honestly kind of hard to bet against Facebook. But, it could be that Nextdoor has something unique here.

What is Nexdoor worth?

Okay, let's talk valuation – our favorite part – starting with user and revenue growth. Their weekly active users (WAU) is ~28M – which is less than 1% of Facebook's 3.5B MAUs. They grew revenues 49% in fiscal 2020, whereas Facebook grew 22%. Both are really impressive, as they've both benefited from the pandemic and surge in social network activity from home. Nextdoor is forecasting this growth into 2021 and 2022.

Based on their projected Average Revenue Per Weekly Active User (ARPU), they're forecasting 30M WAUs for 2021 (11% YoY) and 38.5M WAUs for 2022 (28% YoY). So, clearly, they can't hide the fact that the post-pandemic user growth has topped because there was 37% growth in 2020. By comparison, Facebook grew its monthly active people (MAP) by 15% in Q1'2021. They seem to be, more or less, in line. Nextdoor's user growth will have to come from increased neighborhood penetration and increased reach in new neighborhoods, including International.

Nextdoor Actual and Estimated Revenue/EBITDA

The other important comparison I wanted to make with Facebook was the ARPU itself. Nexdoor is expecting 2021 to have an ARPU of $5.93; whereas Facebook has a ARPU of $7.31 for it's trailing-twelve-months. Nextdoor should, in theory, have a higher ARPU than Facebook; given how hyperfocused the audience and potential advertising can be. But, of course, we know that the platform is nowhere near as mature. So, it isn't fair to compare with Facebook. But, to be fair, Facebook is still growing its ARPU and has many other areas of monetization left on the table (imo).

At a $3.5bn EV, Nextdoor is trading at 14.2x Revenue. Even with the benchmarks they highlight, it honestly doesn't seem cheap to me. Again, just for perspective, Facebook is currently trading at a 9x multiple (much cheaper).

I do, however, like that existing shareholders are retaining majority of shares and the CEO, Sarah Friar (ex-CFO at Square) is also putting money into the PIPE. That's amazing to see, because it really shows the confidence they have in the platform's future.

Should you buy?

Nextdoor has experienced incredible growth, and they offer a unique proposition to both its users and advertisers. It's making money, unlike other SPACs. I like the leadership team and the confidence they have in the platform.

And, for the same reasons this app has been successful, Facebook has decided to "copy" it. Can Facebook crush Nextdoor? I wouldn't bet against it, to be honest. Of course we have the anti-trust legislations working for Nextdoor in this case.

But, the stock isn't cheap.

In summary, I can't justify buying Nextdoor over just loading up more Facebook stock. For me, that's the smarter move.

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