Executive Summary / Key Takeaways

• Nextdoor ($KIND) is undergoing a fundamental transformation, dubbed "NEXT," shifting from an intent-focused utility to a discovery-centric platform to drive deeper user engagement and unlock new monetization avenues.
• The NEXT initiative leverages proprietary technology, including a geospatial platform and AI/ML, to deliver richer local content (news, alerts) and community-powered recommendations ("faves"), aiming to create a more habitual and indispensable user experience.
• Recent financial performance shows improving operational discipline, with Adjusted EBITDA margin improvement and positive operating cash flow achieved in Q1 2025, despite near-term revenue growth moderation (2% YoY in Q1 2025) influenced by the strategic transition and large advertiser trends.
• The company's advertising platform is showing promising performance gains for self-serve advertisers (e.g., >60% of Q1 2025 revenue, significant Click Optimization benefits), and efforts are underway to enable programmatic buying later in 2025 to reignite growth.
• While the NEXT rollout is expected to impact near-term results (e.g., Q2 2025 revenue guidance of ~$60M, Adj EBITDA loss ~$10M), management is making intentional trade-offs to position the company for potential accelerated growth and profitability in the long term, with a full U.S. launch of NEXT targeted by late July 2025.

The Essential Neighborhood Network Undergoing Transformation

Nextdoor Holdings, Inc. ($KIND) operates as the essential neighborhood network, connecting millions of neighbors, businesses, and public agencies across over 345,000 neighborhoods in 11 countries globally. At its core, Nextdoor's strength lies in its unique, verified neighbor base and the proprietary hyperlocal data generated through community interactions. This positions the company distinctly within the broader social media and local services landscape, competing with giants like Meta (META) and Alphabet (GOOGL), as well as more focused platforms like Reddit (RDDT) and Yelp (YELP).

Historically, Nextdoor commenced operations in 2011, introducing advertising in 2016 and becoming a public entity in late 2021. The platform has largely served as an "intent-centric" utility – a place neighbors turn to for specific needs, whether finding a lost pet, seeking a plumber recommendation, or sharing urgent safety alerts during a crisis. While valuable, this model hasn't fully captured the potential for daily, habitual engagement. Recognizing this, and driven by a "Founder's Mentality" emphasizing innovation and execution with an owner's mindset, Nextdoor has embarked on a significant strategic pivot: the "NEXT" initiative. This is not merely an update but a fundamental reimagining of the platform to become a "discovery-centric" network, aiming to make Nextdoor an indispensable part of daily local life.

NEXT: Pillars of Discovery and Technological Foundation

The NEXT transformation is built upon three core pillars designed to keep neighbors informed, safe, and smart:

1. Richer Local Content (News): Moving beyond solely user-generated posts, NEXT integrates high-quality content from third-party publishers alongside neighbor discussions. This aims to create a more comprehensive and reliable local news experience, positioning Nextdoor as a modern equivalent of the local newspaper. Early testing indicates content categories like local politics, safety, and lifestyle drive significant engagement. The company has already partnered with thousands of publishers to embed this content.
2. Timely Local Alerts: Leveraging its unique position as a neighborhood network, Nextdoor is building a dedicated, upgraded alert system. This system, built on the company's proprietary geospatial platform, is designed to deliver real-time updates on events like weather, power outages, or traffic with precision targeting based on a user's location. Alerts feature a clear visual design, urgency indicators (green, yellow, red), and interactive maps. The geospatial technology is critical here, enabling the platform to notify the right people in the exact affected area, a capability difficult for broader platforms to replicate effectively. This enhances Nextdoor's value as a lifeline during both critical and everyday events.
3. Community-Powered Local Recommendations: Recognizing that recommendations for local businesses and services constitute a significant portion (around 30%) of existing conversations, Nextdoor is centralizing this valuable knowledge. A new "faves" section, or neighborhood hub, will utilize AI and Machine Learning (AI/ML) to surface and summarize years of verified neighbor insights. Powered by 14 years of proprietary data from over 100 million verified neighbors, this AI-driven agent aims to provide fast, trusted answers, scaling local word-of-mouth. This is seen as a powerful new surface for local commerce, connecting user intent with discovery and potentially unlocking meaningful monetization opportunities. The ability to draw on and synthesize this unique, verified local data via AI represents a significant technological differentiator.

This technological foundation – the proprietary geospatial platform for precise targeting and the AI/ML capabilities trained on unique, verified local data – forms a critical moat for Nextdoor. While competitors like Meta and Google possess vast AI resources and data, Nextdoor's depth of hyperlocal, verified community data is distinct. The ability to apply AI to this specific dataset for targeted alerts and synthesized recommendations offers a unique value proposition that is challenging for broader platforms to replicate at the same level of local relevance and trust. Recent steps, such as the partnership with Integral Ad Science (IAS) for AI-powered pre-bid brand safety, further underscore the company's focus on leveraging technology to enhance its advertising offering and competitive standing.

Performance and Operational Discipline Amidst Transition

Nextdoor's recent financial performance reflects a company focused on improving operational efficiency while strategically investing in its future. For the three months ended March 31, 2025, revenue grew 2% year-over-year to $54.2 million. This growth was primarily attributed to increased user engagement, specifically a 5% increase in Platform Weekly Active Users (WAU), which outpaced the increase in advertiser spending. While this growth rate is modest compared to prior periods, it occurred alongside significant cost management.

Total costs and expenses decreased by 8% year-over-year in Q1 2025, driven by reductions in sales and marketing (26% decrease) and general and administrative expenses (4% decrease), primarily due to lower personnel-related costs from headcount reductions and decreased performance marketing spend. Research and development expenses, however, increased by 7%, reflecting the prioritization of investment in the NEXT initiative. Cost of revenue also saw a decrease (5%), mainly due to lower third-party hosting costs.

These operational efficiencies contributed to a significant improvement in profitability metrics. The net loss for Q1 2025 decreased by 22% year-over-year to $22.0 million, down from $28.3 million. Adjusted EBITDA loss decreased by 35% to $9.2 million, compared to $14.0 million in Q1 2024, demonstrating continued year-over-year margin improvement. Furthermore, the company generated positive operating cash flow of $0.4 million in Q1 2025, a notable improvement from a $13.6 million cash outflow in the same period last year, following positive operating cash flow of $11 million in Q4 2024.

The advertising business, which generates substantially all revenue, continues to evolve. The Nextdoor Ads platform is showing traction, particularly with self-serve advertisers, who accounted for over 60% of revenue in Q1 2025. Features like Click Optimization have demonstrated tangible benefits, driving approximately 50% improvement in click-through rates for large advertisers using direct buying and a 20% year-over-year reduction in cost per click as performance features gain adoption. While large advertiser spending was down year-over-year in Q1 2025, partly attributed to a shift towards programmatic buying, the company is accelerating efforts to enable programmatic capabilities later in 2025, which is expected to support future revenue growth.

Liquidity remains strong, with $417.9 million in cash, cash equivalents, and marketable securities as of March 31, 2025. This provides a buffer to fund operations and strategic investments, including the NEXT rollout, despite a history of net losses and expected continued operating expenses. The company also continues its share repurchase program, with $88.2 million available as of Q1 2025, having repurchased 4.72 million shares for $9.1 million in the quarter. This reflects a commitment to disciplined capital allocation and managing dilution.

Competitive Landscape and Strategic Positioning

Nextdoor operates in a highly competitive environment. Its most direct competitors are large social media platforms like Meta (Facebook Groups, Instagram) and Alphabet (Google Local Search, Maps), which offer broad reach and sophisticated advertising tools. Reddit, with its community forums, and Yelp, focused on local business reviews, also compete for user attention and local advertising spend.

Meta and Google possess immense scale, vast user data, and extensive R&D resources, enabling them to offer highly targeted advertising solutions and control significant mobile distribution channels. Reddit's strength lies in its diverse, engaged communities and viral growth potential, while Yelp has established a strong position in local business discovery and reviews.

Against these rivals, Nextdoor's key competitive advantages stem from its unique structure:

• Verified Network: The requirement for users to verify their address fosters a higher level of trust and authenticity compared to anonymous or less strictly verified platforms. This is particularly valuable for sensitive local topics like safety and crime.
• Hyperlocal Focus: The platform is purpose-built for neighborhood-level interaction, providing a depth of local relevance that broader platforms struggle to replicate.
• Proprietary Data: The accumulated data on neighborhood-specific discussions, recommendations, and events is a unique asset, particularly as it is leveraged by AI for features like the "faves" section.
• Public Agency Integration: Nextdoor's partnerships with thousands of public agencies provide a direct channel for official information and alerts, a critical differentiator in times of crisis or for essential local updates.

However, Nextdoor faces disadvantages, including a smaller overall user base and less sophisticated advertising infrastructure compared to Meta and Google, historically slower product innovation, and the challenge of scaling monetization effectively across its unique platform. High operating costs relative to revenue, partly due to the nature of verifying users and moderating hyperlocal content, also present a challenge compared to more lean models like Reddit.

The NEXT initiative represents Nextdoor's strategic response to these dynamics. By focusing on discovery and leveraging its technological strengths (geospatial, AI/ML on unique data), the company aims to deepen engagement, increase the platform's utility beyond specific needs, and create new, potentially more valuable advertising inventory. The move towards programmatic advertising and partnerships like the one with IAS are steps to improve the ad platform's competitiveness and ease of use for larger advertisers. The intentional trade-offs in the near term, even if impacting metrics like ad impressions, are a calculated risk to build a more compelling, differentiated product that can stand out in the crowded digital landscape and potentially capture a larger share of local attention and ad spend over the long term.

Outlook and the Road Ahead

Nextdoor's outlook for the near term is shaped by the ongoing NEXT transformation and prevailing market conditions. For the second quarter of 2025, the company expects revenue of approximately $60 million and an Adjusted EBITDA loss of approximately $10 million. This guidance reflects the anticipated impacts of the NEXT rollout, including potential initial reductions in ad impression supply as usage patterns shift and ad load is redefined, as well as continued reduced spending from certain large advertisers. The company anticipates year-over-year revenue growth in the first half of 2025 to be approximately flat, with Q1 2025 revenue at ~$53 million and Adjusted EBITDA loss at ~$13 million.

Management emphasizes that these near-term impacts are intentional trade-offs necessary to prioritize the long-term success of the platform. The full U.S. launch of NEXT is targeted by the end of July 2025. The focus on monetization is expected to ramp up in the second half of the year as new ad formats and surfaces are rolled out following the core product launch. The enabling of programmatic ad buying later in 2025 is also anticipated to contribute to growth.

Key risks to this outlook include the inherent uncertainty of user adoption and engagement with the new NEXT experience, the potential for unforeseen technical challenges during the rollout, the impact of macroeconomic conditions on advertiser spending, and the intensity of competition from larger, well-resourced platforms. Regulatory and legal risks, particularly concerning data privacy, content moderation, and the evolving landscape around AI, also pose potential challenges. The success of the NEXT initiative hinges on Nextdoor's ability to effectively execute this complex transformation, translate increased engagement into meaningful monetization, and differentiate itself sufficiently to capture market share from formidable competitors.

Conclusion

Nextdoor is at a pivotal juncture, undertaking a bold transformation with the NEXT initiative to evolve its platform and unlock its full potential as the essential neighborhood network. By strategically shifting towards a discovery-centric experience powered by its unique hyperlocal data, geospatial technology, and AI/ML capabilities, the company aims to deepen user engagement and create new avenues for monetization. While this transition involves intentional near-term trade-offs impacting financial results and usage metrics, recent performance shows improving operational discipline and progress towards profitability and positive cash flow. The success of NEXT, particularly its ability to drive sustained engagement and attract advertiser spend in a highly competitive landscape, will be critical to realizing Nextdoor's long-term growth and value creation potential. Investors should closely monitor the rollout of NEXT, user adoption and engagement trends, the ramp-up of monetization efforts in the second half of 2025, and the impact of programmatic advertising on revenue growth.