Shares of Nextdoor Holdings (KIND +2.56%) sank today, according to data from S&P Global Market Intelligence. The neighborhood-focused social media application posted weak user and revenue growth in the third quarter along with heavy operating losses. It also changed its CFO and announced a major employee layoff.
As of 1:55 p.m. ET on Wednesday, Nov. 8, shares of Nextdoor are down 14.8%. They are off 88% from all-time highs.
Meager growth, no profits
In the third quarter, Nextdoor's weekly active users (WAUs) grew at a slow 6% year-over-year rate to 40.4 million across the United States. The social application is focused on serving neighborhoods and building communities and is now a sizable force in the online world, although not nearly as big as the internet giants like Instagram or YouTube.
So far, it has struggled to convince advertisers to join its platform. Revenue in the third quarter was a meager $56 million and only grew 6% year over year. Focusing on small businesses and local advertisers, Nextdoor has struggled to get these companies to take the leap and try a new advertiser format. With a lot of employees, Nextdoor posted a net loss of $38 million in Q3 or a negative 68% margin. This was a deteriorating margin compared to Q3 of last year, which is not a good sign for the business.
Add all this together and it is unsurprising to see Nextdoor's stock down so much. Along with the weak earnings, Nextdoor announced a CFO transition, which Wall Street generally dislikes. Finally, it is laying off 25% of its workforce, which it expects to help save $60 million annually. However, it will still need to grow its revenue in order to eventually reach breakeven from a profitability standpoint.
NYSE: KIND
Key Data Points
Where does the company go from here?
Nextdoor is in a tough spot, but the situation isn't dire. The company has over $500 million in cash on its balance sheet, giving it a long runway to grow before running out of funds. With these layoffs, it will likely reduce its burn rate significantly over the next few quarters.
Management is focusing on the right things. It aims to continue growing its user base while simultaneously building better advertising tools for local businesses. Adoption may be slow, but if you believe in the durability of Nextdoor's social media platform, now wouldn't be the worst time to start a position in the stock.
