No worries. Okay, so in the interest of time, to keep us moving along, it's my pleasure to welcome the team from Nextdoor here to the conference on day four. We've got Nirav Tolia, CEO, Matt Anderson, CFO. Guys, thanks so much for being part of the conference.
It's our pleasure.
Thank you for having us.
All right, so I think let's start maybe big picture first. For those less familiar with Nextdoor, some as clients, some as a business, why don't you talk a little bit about a brief overview of the platform? And you're recently back to the company, so you've got some things maybe you wanna talk about long-term, key strategic initiatives as well.
Sure. You introduced me as CEO, but the title that these days is a little bit more in vogue is founder-
Yeah, sure.
Co-founder of the company.
That's true.
Nextdoor was created 14 years ago-
Yeah
... the summer of 2010, and the idea back then was that with the emergence of social networks, while there was a social network for friends, there was a social network for business, that was LinkedIn, of course, there was a social network for interest, that's Twitter, there was no social network for what we believed is one of the most important communities of them all, and that is your local community, and so that is how Nextdoor was created, and that original vision of giving you an indispensable tool that you rely on every day to make your local life better, that is still the broad vision for Nextdoor.
We have 95 million verified neighbors now in 11 countries that are using the product, 99% of neighborhoods in America, and so made a lot of progress, but I think still a lot of potential that's untapped.
So building on that untapped potential, last quarter, you teased out your Next initiative to transform the platform. Why don't you talk through a little bit of your vision around Next and what you're planning to achieve in the next couple of years?
Sure. So I was the CEO of the company for the first nine years or so, and then over the last five and a half years, Sarah Friar, who previously had been the CFO at Square, now Block, came on and took the company from kind of a private company startup to a public company that had scaled nicely and was doing $hundreds of millions of dollars of revenue, and I mentioned the user growth as well. However, we did feel that the potential of this concept to be this essential tool for your local life was something that we weren't realizing with the existing product.
And so the reason that I came back six months ago, and the reason that we're very excited about the future, is we believe there's an opportunity to take our existing user base, to take our leadership position in local, and create a transformative new product that builds on our existing success, and I will give you some specific examples of where we believe we are very, very good today, but expands those use cases to things that will make us, we believe, even more valuable for consumers, and that will obviously unlock lots of business opportunities. And we call that Next. It's kind of a little play on words with Nextdoor.
But the next Nextdoor, at a high level, is all about taking Nextdoor today, which is very good at infrequent but very important use cases, finding a service provider, asking for help finding a lost dog, ensuring that you're up on anything that's happening in the neighborhood, whether it's critical, like some safety concern, whether it's crime, or whether it's inclement weather, and starting to expand the aperture towards more frequent and almost daily use cases as well. And so can you move from a very intent-driven, weekly or monthly kind of active user base to something that feels a lot more like discovery that you would find on X or you would find on Instagram, that then translates into more frequent daily usage? That's the challenge that we've been tackling.
Okay. We're at a technology conference. You can't help but talk about artificial intelligence at a technology conference. You've talked a little bit about it since coming back to the company, so I think I might wanna do a couple things here. Can you provide an overview of what you're doing with respect to AI and machine learning? Maybe give us some of the early learnings from newer products like the AI assistant, and talk a little bit about both consumer-facing and advertising-facing, how AI might change the platform in the years ahead.
Sure, and let me say three things. The first is, when I was gone from Nextdoor, and I wasn't really gone because I was on the board, and obviously as a Co-founder and the largest individual shareholder, the company is extremely important to me, both personally and professionally. But I stepped away from the operating role as CEO and became an investor. And the last couple of years in particular, I've been looking mostly at AI opportunities, like most investors in technology. And so this is a space where I feel like I have some expertise, even outside of Nextdoor. And so it was wonderful to come back in and realize that with Nextdoor, we had already done some things. You mentioned the AI assistant, and I'll just give some specifics on the consumer side and then the advertiser side.
On the consumer side, we've taken AI, and we have enabled for our users the ability to use that AI to create better content. In some cases, that's because they come to the service, and they're agitated about something, and we have something called the Kindness Reminder that will read-
Yeah
... the thing they're about to post and then suggest that they use a different set of words that may be less inflammatory or a little bit more neighborly, and that's been very successful.
Yeah.
On the consumer side, we've used AI to make it easier to create advertising, so reduce friction, and then more recently, Matt will probably expand upon this when you start to get into some of the revenue questions and what we're doing on the technology side from an ad stack perspective, but we've used ML primarily to drive better performance of advertising, and we have some specifics in terms of where performance has gone that we're very excited about, and that's super early. I mean, if you look at the big platforms like the Metas and the Alphabets of the world, and what they've been able to do with ML to drive performance, if they're somewhere in the third, fourth, or fifth inning, we're barely in the top of the first, and we're very encouraged with what we can do.
Let me actually end this little piece on AI with what I think is most important to understand about Nextdoor and its opportunity in AI. When I was looking at AI opportunities as an investor, I developed a thesis that to truly be an AI company, you need three things. You obviously need the technology.
You need to hire great people who understand AI machine learning, and who can build the kinds of transformative technologies that can take advantage of this opportunity. You also need the content, though.
Yeah.
And we've seen this increasingly in the consumer space with some of the licensing deals and where the trends are now moving. Remember, Nextdoor has completely proprietary content. We don't rely on anyone else for what comes into the system. We're a membership platform, so we know exactly who's created that content, not just who they are, but where they live, and that gives us a great advantage. Finally, there's a third piece, which is you need an audience or distribution that you can then take the technology and the content, and then train your LLMs against. And so the fact that we have ninety-five million verified neighbors, if you think about the three big things that are necessary, the technology, the content, and the audience, we have all three. That means that for us, AI shouldn't just be a vertical kind of initiative, it should be horizontal.
It should touch everything we do, whether it's the consumer experience, the advertiser experience, or even what we do internally to make all of our systems more efficient.
Okay, very clear. Matt, I do wanna bring you into the conversation. You know, maybe start high level, you know, a little bit of a snapshot of what the advertiser base of the business looks like now, and how to think a little bit about some of those cohorts and verticals, and how they act and behave on the platform.
Yeah. So I'll start by saying that Nextdoor is, and should be relevant for advertisers of all sizes across all verticals. Now, as you know from these past discussions, we do have verticals where we're endemic. We talk about things like home services. But that first point is why we're actually shifting the conversation towards things like self-serve, because in our last earnings, we talked about 50% of our revenue coming through self-serve. Why is that? Because that is relevant for advertisers of all sizes, the local SMBs, all the way to the large global enterprise, who need hands-on keyboard capabilities. And so that's the first thing. The second is, for those coming self-serve, they are necessarily serving on our Nextdoor ad server, which means it's starting to bring to bear the things that Nirav talked about.
Building ML into our ad serving models, so that we can actually put the right user in front of the right ad. When we start talking about things like improved cost per click, driving the performance, that's how that's happening, and it's those advertisers coming in through self-serve that are benefiting. Now, who are those advertisers? Today, they're largely mid-market advertisers. You could think of them as those spending between $5,000-$25,000 a month, large regional brands. This is really the sweet spot, and when we look at things like I mentioned a moment ago, the cost per click, new logo additions, new agencies we're building relationships with, improved revenue retention, it's starting with this group because they're coming in and experiencing that for the first time.
Ultimately, all the dynamics I discussed are highly relevant, arguably even more relevant for large enterprises. So that's where we'll continue to push towards continuing that transition to those larger mid-market and enterprise advertisers. So that's, that's really a different lens on who's coming to us, who's benefiting from the platform today. You know, I will kind of layer onto that, you know, how do we think about growth in the future? One is continuing those things we talked about. Two, it is actually driving awareness and building those agency relationships I mentioned a moment ago. There's still a lot of opportunity there, both in the mid-market and the enterprise, so we're gonna continue to evolve our go-to-market to do that more effectively. You know, in terms of verticals, you know, we have a big four verticals today, which is... We talked about home services.
We have retail and QSR, really foot traffic-oriented verticals. We've got financial services, tech and telco. But there is a portfolio of emerging verticals for whom, you know, unlocking capabilities, in many cases, table stakes from the ad stack, is important. So we think there's a continual opportunity there. And then, you know, really also thinking over the medium and longer term are SMB customers. How do we start to bring better capabilities to those groups? And so this is an area where if we can help them write better ad copy with AI, this is the type of advertiser that benefits really significantly from that. So there's all those different dynamics we think that can continue to drive advertiser growth and advertiser retention across all those different advertiser types.
Okay, very clear. I wanna stick with you, and you introduced the concept of Ads Manager, the Ad Server. Talk a little bit about what you do see as the key benefits or lift that the platform gets as those initiatives continue to scale, and how should we think about where they frankly are in terms of, like, adoption and migration of advertisers onto those platforms within the-
Yeah
... within the company?
So I'll break it into two pieces. The first is obvious, and I've already started to talk about, which is advertiser value. And so internally and increasingly externally, we talk about our advertiser value equation, which is reach, which really starts to get addressed and unlocked by Next, return on ad spend, which is a function of both that reach, but also really those capabilities we talked about on the ad stack, and then ease of use, which is where making self-serve more accessible, kind of improving all types of capabilities, is really important. So that's our advertiser value equation. Now, from our perspective, you know, we talked about 50% of that revenue coming through self-serve. That's probably the best indication of our progress to date, 'cause we will continually be transitioning and evolving our ad stack, and we continue to be focused on that.
Now, so that's really the kind of key aspect of where we are. I'll reinforce a point again, we both mentioned, which is AI lives at the center of the ad platform, both the Ads Manager, which is what you see as an advertiser, and the Ad Server, which is how we deliver the ads. So that's really gonna be core to the experience. And so it'll be continuous, but one thing I will say is, even as we improve and evolve our ad stack, we can get significant leverage from the investments we've made today.
Okay, very clear. I, I don't know which one of you would like to talk to about this, maybe both will wanna touch upon it, but aside from a few markets like U.K., Canada, where you've had some nice notable success, from what we could see, you know, international remains still big white space, big opportunity, a lot of untapped potential there for you. How would you frame the international user opportunity over the long term, and what do you see as some of the key investments you need to make in international to execute against that market opportunity?
It's a great question, and before I even left as CEO the first time, we had launched, I think, in nine international markets. And so we believed, after launching in the U.K. initially and the Netherlands, our first two markets, that unlike most local companies domestically, we have an international opportunity. In fact, people typically say, "Okay, what's the Nextdoor of the U.K. gonna be?" We say, "It's gonna be Nextdoor," right? We, we have not been like most local companies, where there's been a copycat or someone who's been inspired by our idea and has been able to grow in another market. And so when I came back, however, we felt that focus and priority was essential in upgrading our execution.
And so part of what we said was, as we transform the product and as we continue to build out this new set of ad technologies, we're gonna focus those efforts on what we believe to be the near-term opportunity markets. That's primarily the U.S., obviously, but then also the U.K. and Canada, the English-speaking markets as well, really as a way to facilitate focus and quality of execution. We did retrench a little bit in that sense away from the non-English-speaking markets. It's not because we don't feel like there's an opportunity there, we don't have existing user bases there. It's more that we felt like this was a sequential way to go after the opportunity.
First, let's focus on where the biggest and most vibrant markets are today, and then once we roll out Next, and once we actually get from 50% - 100% of the transition onto our own ad technologies, then we can start to focus on the external markets. And so I would say in the near term, the focus is, as you mentioned, the U.S., the U.K., and Canada. In the long term, we believe the international opportunity is just as vibrant as it's been. So just because we have upped the priority on the English-speaking markets, doesn't mean we've forgotten about the rest.
But when you're coming back to a company and you really wanna ensure that people know exactly what the most important things to do are, you can't be afraid of saying, "For the near term, we're gonna really narrow the aperture in that sense and focus on what's right in front of us.
Okay. Is there anything you want to add there?
Yeah, I will just layer on one point to that, which is, you know, we are focused on points of leverage in our business, and so that focus on the U.S., the market where we're adding millions of neighbors organically each quarter, and we've added three million U.S. WAU in the first half of this year. And so it is, you know, it is deliberate. It is, it is something that we look to in terms of holding ourselves accountable. It's not just a, "Okay, we'll cut," it's really, how do we find the points of leverage to drive growth so that we can reinvest in the aspects of the product that will make it easier to scale on those markets in the future? So there has been real progress in, in the U.S. today, as an example.
Okay. Bring it all together for us, Matt. You know, we've talked a little bit about the Next initiative, AI, growing and scaling the ads business international. So you're still in the early innings of a lot of addressable market opportunity. How do you guys as a team or, or Matt, from your role, how do you think about balancing investments against long-term growth, while continuing to deliver against scaling profitability and some of the profitability and margin trajectories you've talked about achieving over the medium to long term as a business?
Yeah. So there are two important points to start. One is, we believe today that we have an opportunity and responsibility to generate more leverage from our model. And so you've seen that in the form of 20 points of margin, 20+ points of margin improvement in Q2, and a commitment to deliver at least that for the full year. So we know just today, there is room to be, to do more with less, as we said. That said, we are a growth business. Everything we are doing, including costs we are reducing. You know, we talk internally about there is the absolute cost, and then there is the allocation of cost.
It's really that latter part where we are shifting our focus to those points of leverage I mentioned, which is, how do we reinvest what we used to spend on neighbor marketing to build a better product that's more durable? Where retention continues to improve, where we drive more usage from those verified neighbors. And so for us, everything is about that allocation piece towards the product, which we think can drive durable growth and ultimately scale. Because the best version of this model requires more scale than we have today, and so we're highly, highly focused on driving towards that. Now, what are the intangible ways we're doing that today? So there's things like reducing our platform costs.
So we improved our gross margins 2 points year-over-year in Q2, which is pretty significant, and that's a relentless focus on thinking about unit costs, thinking about platform costs, how we plug that into new AI investments. So that's the first piece. There's areas like leverage on sales and marketing. That has been, and will continue to be a source of leverage for our platform. And then it really gets into doing more with less, looking carefully at our teams. I mean, we've significantly reduced team size and productivity across all functions. And so those are things that are happening today to do more with less. But what I wouldn't want anybody to not take away from this, what I want everyone to take away from this, rather, is that we are focused on the ways that we point towards growth.
That is how this business becomes its best future state.
Okay, so maybe, did you wanna add something?
Yeah, I just wanna add-
Yeah, sure.
Culturally, when you come back to a company and there's leadership change, there's always a lot of speculation and even some recommendations that you just wanna get rid of what was going on before and do some transformative thing that is completely different. You don't need to worry about the short-term effects of that. I think we believe culturally that you need to both develop, and that really means invest and think about a longer time horizon, and deliver, and so when Matt talks about significantly reducing the spend on resources across the board, this is a company that has hundreds of millions of dollars in cash, so that was not a decision that was motivated by feeling like we were gonna run out of money or that we didn't have enough resources to do what we wanted to do.
That was motivated by this idea that we do believe culturally that we should be thinking about doing more with less, and we believe that constraints and necessity is the mother of invention. Now, the difficult thing is, as we deliver on the existing investments that we've made and on our ongoing investment, and you saw the numbers last quarter, 8% growth in users, 11% growth in revenue, 20 points of margin improvement, those still aren't at levels that we ultimately feel like define Nextdoor as a growth business, and so we have to simultaneously develop those growth mechanisms, and that's through investment, and deliver. The difficult thing is, on the develop side, innovation's not a linear path.
And so I talked to my CFO here on the left, and, you know, he says, "Okay, you're building this thing called Next, and it's gonna be transformative, and you're gonna make some bets. And, yes, I understand that some are gonna pay off and some aren't. How are we thinking about pulling that into the model, right?" That's where it starts to get a little tricky, but that is the challenge of building a great company. You need to simultaneously think about investing in the future so that you can continue to be a true growth business, which is what technology and software businesses can do, but you also have to do the short-term delivery. So this, to me, is not a question of or.
Most people pose it as, are you going to cut costs and think really critically about your execution, or are you going to invest in the future? You have to develop the muscles to do both.
Okay, I wanna build on that answer, and feel free, again, to take this however you want. Matt was framing up an answer on investing for the long term. You talked a lot about striking that right balance. When you take investments in the business, and we widen out the question to broader capital allocation. So there's a dollar could go into the business to accelerate growth, a dollar of capital could go towards M&A and maybe speeding up some of your go-to-market inorganically, or, and you've done this as a company, return some capital to shareholders. How do you think about your priorities there, how your philosophy might be shifting or changing? We'd love to know the level set around that topic more broadly, so.
Yeah, so we've talked a lot about the first bucket that we think about, which is: how do we invest in the operations of the business, and so that is really everything that we've discussed today. The second is around things like buybacks, as you referenced, so with that conversation, it started with: what are the highest return activities that we think we can do? Where do we see compelling opportunities?
There were points in time earlier in this year, as we looked ahead to the roadmap and the opportunities and the business model dynamics we talked about, and said, "There is an opportunity to really see an attractive return based on what the outside world can see about our business and what we think we can deliver." Then there's also an element of signaling, you know, our conviction in the work that we're doing, and so buybacks have been a part of that capital allocation equation today. We disclosed our buybacks in Q2. We bought back almost 5% of our fully diluted shares in the quarter, and we've been buyers in Q3. That's a core aspect of it. Then there are things, like you mentioned, inorganic. You know, for us, the key word here is focus.
So we're really thinking about ways that we can get to the core of improving that core user and advertiser value equation. And so in the near term, things like M&A are less of a focus for us today, but as we look over a longer time horizon, that certainly can come back into the equation, as we've continued to deliver on things like Next.
Okay. We only have a few minutes left, but we try to end these conversations with a bit of a forward eye, so I'll ask you, as both a founder and a CEO, a couple of questions. So number one, when you look out over the next three to five years, what excites you the most about the opportunity that sits in front of you with respect to Nextdoor? And then, hopefully, this is my pitch, we'll be sitting here having this conversation a year from now. If we're having a conversation a year from now, what do you think investors are not yet focused on with respect to how your business or the advertising landscape might change, that you think people should be thinking about or should be more front of mind?
Sure. And as a founder, a five-year time horizon is something that I'm not familiar with, and so I would say three years is probably the furthest out that I think about Nextdoor. And really, we're thinking about showing meaningful progress in the next 6 to 18 months. I mean, we want the urgency of delivery in what we would consider a near and medium term. But now let me dream for a second, because that's really the question that you asked. We believe that local is a massive opportunity. We think it's not just massive, it's one of the only remaining massive consumer opportunities that isn't already dominated by the trillion-dollar market caps.
And so as we look at that, and we think about the fact that we have built a membership-centric platform that does not rely on anyone for distribution, that knows exactly who its members are and where they live, and that grows organically, we think we're extremely well-positioned. Because local, we believe, like every other consumer space, will ultimately move from being fragmented, like it is today, to being consolidated. And so the dream for Nextdoor, if we move beyond the consumer value proposition to the investor value proposition or the business proposition, is we do believe that there is a massive opportunity in local, and that we are best positioned infrastructurally with how we've built the company to capture that opportunity. Now, the current product is not gonna get it done. That's actually why we have Next, and why we think about doing things that are transformational, right?
But with great execution, with really innovative product development, we think that we have the best opportunity of a number of players that are trying to figure out how is local going to be captured. Ultimately, the way you get there is by delivering value on a quarter-by-quarter basis. And so it comes back to what I talked about before, which is you build the credibility by delivering every single quarter, but then when you look back two quarters, three quarters, four quarters, you start to see something that looks a little bit more transformative. And that is something that I believe starts culturally, and then if you build that culture, it reflects itself in the results. And so that's the thing that we are obsessed with, and I, I've talked about this in a couple of shareholder letters. There's a great book called Founder's Mentality.
Now, I know these days in Silicon Valley, Founder mode is kind of the topic du jour. But going back four or five months ago, we talked about in our shareholder letter, this idea of a Founder's Mentality, which is not just the province of founders, and it's not just the province of newly created companies. It's really a mindset, which is, can you have a really strong mission? And that mission for us is to be the indispensable company in local. Can you be so obsessed with the front line and the details that you do amazing execution? And finally, can you do all of that with the mindset of an owner? So when you talk about how do we think about investments, ultimately, it's about accountability, right? That's how we think about investing.
I mean, we will obsess over the fact that we do need to drive ROI when we do these things because we have shareholders, we have responsibilities, we have fiduciary commitments, right? But the reason we're here, and the reason that we wake up in the morning every day, is because we think there's a massive, massive opportunity on the other side, and that's exciting.
Okay. I think we're gonna leave it there. First of all, thanks for the opportunity to have the conversation, and folks in the audience, please join me in thanking Nextdoor for being part of the conference this year. Thank you.