Nextdoor Holdings, Inc. Q2 FY2025 earnings call

Nirav Tolia introduced the company-wide transformation with three priorities: product excellence, operational discipline, and a recommitment to local community. The new Nextdoor has three pillars: local news (covering 77% of U.S. cities, 5% of feed content), real-time alerts, and Faves (in beta in 6 U.S. markets). Self-serve channel revenue grew 27% and accounts for nearly 60% of total revenue. Platform WAU is $21.8 million. Monetization opportunities include integrating with programmatic partners. Profitability: Q2 GAAP net loss was $15 million, adjusted EBITDA loss was $2 million (a 6 percentage points improvement year-over-year). Positive operating cash flow for the third quarter. A restructuring plan is in place to reduce annual GAAP operating expenses by approximately $30 million.

In Q2, self-serve revenue grew 27% year-over-year and accounted for nearly 60% of total revenue. Q2 Platform WAU was $21.8 million, growing 1% year-over-year. Q2 revenue was $65 million, up 3% year-over-year. Q2 adjusted EBITDA loss was $2 million, representing a 6 percentage points year-over-year improvement. We generated positive operating cash flow for the third consecutive quarter.

Expect Q3 2025 revenue of approximately $66 million and an adjusted EBITDA loss of approximately $5 million. For full year 2025, modest year-over-year revenue growth is expected, with Q4 2025 achieving adjusted EBITDA breakeven. Full year 2026 is expected to be adjusted EBITDA breakeven. The restructuring plan will reduce annual GAAP operating expenses by approximately $30 million, with one-time severance and related costs of approximately $5 million expected in the third quarter of 2025.

Q: Good to see some nice progress here. Just wanted to ask about ad volumes. So I'm wondering if there's any way that you could quantify kind of the changes that you made to ad loads earlier this year? And then as we go from here forward, what does that strategy look like for turning back on the ad loads? I know you said not to expect a lot of that in Q3, but kind of what duration or do we get back to the ad load that we were at before?

A: This is Nirav here, Jason. Thank you for the question. Appreciate it. And there's probably more of the same in regards to the continued experimentation that may actually affect how we're designing user interfaces and where we're placing ads. I think what we're probably a little bit more excited about in the second half of the year is experimenting with new ad formats and new surfaces that we've launched with the new Nextdoor. And so whether that's in the alerts area, in the Faves area or within search, that's probably where we would focus a little bit more. In the core feed, the way for us to actually drive more ad inventory is to drive more usage. And in that core feed, because we now have the introduction of third-party content, because we're starting to bring alerts in, I think we're still in a mode where from a long-term standpoint, it makes a lot more sense for us to continue optimizing the user experience first versus ad load.

Q: So maybe a follow-up, just sticking with that. Obviously, you've rebuilt this platform for the consumer, not necessarily for advertisers. But I'm just curious, to what degree did you bring in marketers throughout this process to maybe get feedback to help identify these new ad formats. And curious, as this has been in market for just a few weeks, have you gotten any feedback from these advertisers on what their thoughts are on the new platform you've rolled out?

A: That's a great question. So for the first part of your question, I spoke with quite a number of CMOs about the new Nextdoor. So it was certainly a focus on a great user experience. But what I heard over and over again from the CMOs is that they also wanted the better user experience first, and that would make this a more attractive platform for them as advertisers. So I think in this case, focusing on user experience doesn't make the advertisers feel like they're suffering. In fact, it's actually what they're looking for as well. It's actually a win-win. We did actually take them through all of the elements of changes or at least the first part of changes as we launched the new Nextdoor. They were very excited. We told them that we would fast follow the launch with the new ad formats, and that's the period that we're in right now. So we would expect to work a lot more closely with them really now versus leading up to the launch and immediately after the launch. We will absolutely be leaning on the advertisers to help us define the new ad format. That's something that is not really a consumer value proposition as much as it is really ensuring that the advertisers have the opportunity to reach the users who are more pleased by a better user experience in the right way.

Q: Jamesmichael Charles Sherman-Lewis Two questions, if I may. First, I understood we're early days still in compiling learnings from Next, but would love some color on the evolving use cases you see for the Nextdoor app and which surfaces users are spending the most time on? And then, Matt, in context of the continued pressure among large advertisers spending into 3Q, hoping you can shed some insight into the budget conversations you're having with these advertisers and how the new supply side integrations can bolster your revenue from large customers.

A: Great. Thanks for the question, Jamesmichael. So on your first piece, yes, it's early, and we will have a lot more to share at the next earnings call. But I think the most important thing is what we started my remarks with, which is we've seen NPS grow more significantly over the last 6 months than in any period in the past. And so clearly, that is a leading indicator that users are appreciating the changes that we've made. In regards to what surfaces they're using, I also put this in my early remarks, we've now got 5% of overall newsfeed content in the form of local news. And I think almost half of our users or just over half of our users are engaging with that news content. So for a relatively small percentage of our total content, it's actually appealing to a very large percentage of our overall audience. The alert surface is being seen as incredibly useful, which makes us feel good because our focus here is really to make Nextdoor indispensable to make it a utility that you lean on. The challenge with the alert surface is that we are not going to send out alerts unless there are actually alerts happening in your neighborhood. And so if you haven't had any of those things I mentioned, inclement weather, a fire, some traffic delays, a power outage, well, then you wouldn't have received an alert and you wouldn't have interacted with that surface yet. So alerts is one of those features that will take more time because it's not something that you flip a switch and everyone starts using. It's something that's driven organically by actual real-time events that are occurring. What we're seeing though is when those events occur, there are really big responses from our users. So for example, there were a series -- I remember a few weeks ago, a series of tsunami warnings. I was in San Francisco and people started getting tsunami warnings, which is a little surprising because when you live in San Francisco, you don't always think about tsunamis. But I remember because we had a Board meeting that week, several of our Board members received alerts from Nextdoor hours before they received the exact same alerts from various Apple services. So we're very bullish on the alert surface, and it's something that it's not going to turn all at once. But as there are noteworthy events in your neighborhood, we think you will very much appreciate that feature. On the Fave side, that's only live in [indiscernible]. And so as we look to roll that out across the rest of the country, we'll start to see that scaling. Today really news is the thing with news for 77% of U.S. cities that we're seeing the most of. And we're delighted by the number of stories, the engagement on those stories, the comments that are being generated. And really, it's just the very beginning of third-party content on Nextdoor. I'm going to turn it to Matt to answer the second question.

A: Yes. Jamesmichael. So a couple of points on the larger advertisers. So first, we did see a quite meaningful quarter-over-quarter improvement. The other thing is overarching all of that is the fact that one of the biggest things with these large advertisers, they are existing advertisers who are staying with us today who may be facing constraints of some kind, whether it's wanting to expand their reach to our audience, which we think -- the Nextdoor experience helps to address, whether it's through the buy that we talked about and the programmatic partners that you referenced. So those are things that will be overarching dynamics. One of the things that's also at play right now is a lot of the click optimization we've talked about in the context of self-serve. Right now, as we mentioned, Q3 is really the first period we're starting to see some of those benefits become available to larger managed advertisers. So we would expect an ongoing gradual benefit, the same way we've seen in self-serve over the last several quarters. So that's an emerging dynamic. And then as it relates to those programmatic partnerships, as I mentioned in my comments and as you noted, we've already seen some early progress from the supply-side platform integrations. And we're also very excited to be able to start to open up the demand side platforms. As I mentioned, those demand-side platforms integrations are going to be later this year. These are really in service of having multiple durable growth drivers and really start to play a bigger role in how we think about the 2026 trajectory.

Q: This is Ryan Powell on for Naved. So first, I wanted to ask about Faves and expansion of that. I was wondering what the status is on expansion into all markets. And then I have a follow-up.

A: Great. So very simple answer to the Faves expansion. We're looking forward to continuing to expand it to the rest of the country through this calendar year. And so when we initially launched, it was in beta, we wanted to both launch it in a limited area and then learn from people using it in that area. That's what we're going through right now. As we create those learnings, we will begin to launch DMA by DMA until it's available for all of our users. I think another interesting thing that we have thought about as it relates to Faves is Faves is using AI to summarize and promote existing content that we've collected over the last 14 years. it doesn't only have to appear in the Faves section. So even before we officially launch Faves sections in other DMAs, you might start to see the Faves content that's been summarized by AI show up in places like the news feed.

Q: Unidentified Analyst: Got it. And then in terms of publishers, I think you mentioned 35,000 on the platform now. What is the TAM there? What can that...

A: Right. So it's actually 3,500, not 35,000. And we think the TAM is probably 8,000 to 10,000. And so we will continue to bring those on the platform, but that's one of those numbers that we think we can achieve near ubiquity or total adoption at some point in the near future, call it, the next 6 to 18 months.