Popular local social network Nextdoor is going public, announcing a deal to merge with special purpose acquisition company (SPAC) Khosla Ventures Acquisition II (KVSB). The news comes following reports in late 2020 that Nextdoor was preparing to go public targeting a valuation of $4 billion to $5 billion. The unicorn start-up has achieved that goal, with the SPAC deal giving Nextdoor a post-money equity value of $4.3 billion.
Here's what investors need to know about the local social media platform.
Image source: Getty Images.
A third of U.S. households use Nextdoor
Nextdoor is a popular platform that connects neighbors, allowing people to share information and updates that are more relevant to local users. To date, the company has raised approximately $470 million in funding and was most recently valued at $2.2 billion in late 2019. The company had poached former Square CFO Sarah Friar to become its CEO back in 2018.
Like many online services, Nextdoor saw engagement soar last year as the COVID-19 pandemic forced people to stay at home, with many people seeking out ways to stay connected through the internet. Currently, Nextdoor operates in 275,000 neighborhoods globally, with roughly a third of U.S. households using the platform to interact with local communities.
In terms of users, Nextdoor says that it has 27.6 million weekly active neighbors (users), or WAUs, as of the first quarter. It's worth noting that many users end up losing interest in the platform over time. Nearly half of new users stop regularly checking the platform within two years, with 54% of users staying engaged after that time frame. Still, the company says that its overall engagement is comparable to larger social media platforms like Facebook or Twitter, as measured by the proportion of daily active users (DAUs) to monthly active users (MAUs).
|
Year |
WAUs |
|---|---|
|
2018 |
13.3 million |
|
2019 |
19.5 million |
|
2020 |
26.7 million |
Data source: Nextdoor.
"Nextdoor has been at the forefront of cultivating 'hyperlocal' communities and neighborhoods since its inception, allowing neighbors to create meaningful connections -- both online and offline," Friar commented in a release. "Our business strengthens as we scale, benefiting from strong network effects, and we believe the proposed transaction with KVSB accelerates the growth potential of our platform."
Nextdoor's business
Like most social media companies, Nextdoor's primary monetization method is advertising. Thanks to its positioning as a "hyperlocal" platform, Nextdoor can appeal to small- and medium-sized businesses (SMB) that are trying to find local customers. Monetization has been steadily improving, with average revenue per WAU climbing from $3.83 in 2018 to $4.99 as of the first quarter.
The company sees opportunities to grow the business by strengthening monetization for several products that are currently under-monetized. Additionally, international expansion is still in the early stages. Of the 60 million verified users on the platform, just 9 million are located in international markets.
Total revenue in 2020 was $123 million, with sales expected to climb 44% to $178 million this year. Nextdoor posted a net loss of $75 million last year, which is forecast to balloon to $103 million in red ink for 2021. The long-term adjusted EBITDA margin target is approximately 40%, compared to the adjusted EBITDA margin of negative 41% in 2020.
Deal details
The SPAC has $416 million in cash in its trust account, and Khosla Ventures has lined up $270 million in PIPE (private investment in public equity) financing from a consortium of prominent institutional heavyweights including T. Rowe Price, Baron Capital, and ARK Invest. That will bring in an estimated $686 million in gross proceeds, assuming no redemptions from Khosla Ventures Acquisition II public shareholders.
The merger is expected to close in the fourth quarter, at which point the ticker will change to "KIND."
