Stock Analysis & Ideas

Nextdoor Holdings: Is This Social Commerce Stock Worth Considering?

Story Highlights

There’s plenty of risk premium built into KIND stock, as the company lacks profitability. Nevertheless, speculators can take a chance on Nextdoor Holdings as the platform partners with a famous tech-market giant.

Headquartered in San Francisco, Nextdoor Holdings (KIND) uses technology to connect neighbors with each other and with local businesses. I am bullish on the stock.

At the crossroads of e-commerce and social media is a phenomenon known as social commerce, where people and businesses connect digitally and purchases are based on trust instead of just relentless advertising. It’s an intriguing concept in a post-COVID-19 world as lockdowns are lifted and social interaction is permitted and even encouraged.

Nextdoor is unafraid to emphasize the commerce aspect of social commerce, as the company observes that “72% of neighbors saying they were influenced by a business recommendation in Q1 2022.” The question remains, though, as to whether a self-described “neighborhood network” can demonstrate its viability as a business venture.

While Nextdoor’s financials are certainly imperfect, there are enough positive data points to recommend a long position for traders who can tolerate a fair measure of risk. Furthermore, Nextdoor’s tie-in with a technology giant should help to spread the word about this uniquely neighborly platform.

On TipRanks, KIND scores a 5 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to perform in line with the broader market.

Growth Isn’t Reflected in the Stock

“We believe that the current macroeconomic environment, combined with the strength of our balance sheet, presents an attractive buying opportunity for our stock.” That’s a quote from Nextdoor CFO, Mike Doyle, and while it’s encouraging to see that the company’s management is optimistic, of course, investors shouldn’t just take their word for it.

It appears that the trading community isn’t quite convinced of Nextdoor’s value proposition, as KIND stock has been on a relentless downward slope. In fact, the stock has descended from $13 in November of 2021 to barely more than $3 in mid-2022.

Nonetheless, Nextdoor Holdings is evidently quite confident in its own future as the company’s board recently approved a share repurchase program. With this, Nextdoor is authorized to buy back up to $100 million of its Class A common stock, through June 30, 2024.

In the press release, Doyle pounded the table in favor of KIND stock, asserting that Nextdoor’s long-term growth isn’t “reflected in the current market valuation.” The CFO might be right about that, as the Nextdoor platform is used in 290,000 neighborhoods across 11 countries. Indeed, the Nextdoor network is so wide that nearly 1 in 3 U.S. households uses it.

Moreover, prospective investors should know that in 2022’s first quarter, Nextdoor Holdings grew its weekly active user count 33% year-over-year to 36.7 million. Impressively, this result marks a third consecutive quarter of weekly active user acceleration for the company. Also in Q1 2022, Nextdoor increased its revenue 48% year-over-year to $51 million. Local businesses have likely enjoyed a financial windfall as well, as 96% of neighbors have reportedly seen business recommendations on Nextdoor’s network while 71% of them have shared a business recommendation.

Building Real-World Connections

Don’t get the wrong idea here, as Nextdoor Holdings’ financials aren’t perfect. Certainly, it’s problematic that the company widened its net earnings loss from $25.1 million in Q1 2021 to $32.9 million in 2022’s first quarter. Perhaps Nextdoor should cut back its expenditures, as the company significantly increased its spending year-over-year in Q1 2022, in the categories of Research and Development, Sales and Marketing, and General and Administrative.

Still, Nextdoor’s user base and revenue appear to be expanding, and that’s a positive sign. Additionally, Nextdoor Holdings has disclosed a partnership with a technology company that will be familiar to most people.

Specifically, Nextdoor is collaborating with Microsoft (MSFT) to display Nextdoor’s local content within Microsoft’s digital properties, including MSN and Bing. Thus, “people using Microsoft Bing, Microsoft Start Feed, or MSN in their preferred city will be able to view Nextdoor content for that specific area.”

This represents a huge win for Nextdoor Holdings, as the Microsoft product/service integration should expose Nextdoor’s platform to many new potential users. Microsoft might also benefit as this collaboration could give Bing, MSN, etc. a more local, neighborly feel.

Nextdoor Chief Product Officer, Kiran Prasad, made a commerce connection, explaining, “This is Nextdoor’s first partnership of its kind and we are delighted to partner with Microsoft to distribute relevant neighborhood news and enable more neighbors to build real-world connections with those nearby.” Prasad also teased the possibility of more value-added collabs, saying that Nextdoor looks forward to “developing more strategic integrations and connecting partners with our uniquely engaged audience.”

Wall Street’s Take

Turning to Wall Street, KIND is a Hold, based on one Buy and four Hold ratings. The average Nextdoor Holdings price target is $5.40, implying 72.52% upside potential.

The Takeaway

There’s no guarantee of safety if you’re going to invest in KIND stock, as Nextdoor Holdings isn’t a profitable company and the shares have lost a great deal of value over the past year.

On the other hand, maybe you’re willing to accept some risk and wager on the continued growth of Nextdoor’s network of neighbors, facilitated by the Microsoft tie-in. If this sounds like a worthy bet on local link-ups, then feel free to give KIND stock a chance with a moderately-sized share position.

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