Saturday, 16 December 2023
by Rose White
Cathie Wood has been feasting in this current market climate. Growth stocks have stormed back into market fancy, and the Ark Invest founder, CEO, and tech investor has been rolling. Ark Invest’s largest exchange-traded fund hit a new 18-month high on Thursday, soaring 68% so far in 2023. Wood appears to be back on track after back-to-back down years following her blowout 2020 performance.
Ark Invest publishes its daily transactions at the end of every trading day. As the lead investor, Wood has been active in recent weeks, with aggressive growth stocks leading the market rally. However, she was particularly quiet on Thursday. She added to only one existing position, which happens to be one of her smallest positions by market cap. Ark Invest’s lone purchase was Nextdoor (NYSE: KIND). Yes, that Nextdoor. Let’s take a closer look.
There’s a fair chance you’re familiar with Nextdoor. It operates a hyperlocal discussion board that groups its members across 310,000 neighborhoods. It attracts 40.4 million weekly active users, representing roughly one-third of U.S. households. The platform’s user-facing goal is noble, connecting folks with neighbors, businesses, and public services:
Our purpose is to cultivate a kinder world where everyone has a neighborhood they can rely on.
Even the stock’s ticker symbol — K-I-N-D — implies a kindness nurtured in a community-building platform as folks help one another and lean on trusted sources. Reality isn’t always as kind. You may run into scammers, local aspiring politicos getting into heated exchanges, or nosy neighbors complaining. However, that’s also the same “slice of life” approach to online forums that can also help call out bad behavior.
Nextdoor works, but it doesn’t mean the business itself has been successful as an investment. In a year of big gains across many of Cathie Wood’s holdings, Nextdoor is down 9% this year through Thursday’s close. The stock has plummeted 90% from the all-time high it hit the day it went public as a special purpose acquisition company (SPAC) in late 2021.
Sluggish growth for the ad-supported model hasn’t helped. Revenue soared 56% the year it made its market debut. It’s now coming off back-to-back quarters of a mere 4% in top-line growth.
Its net loss also widened in its latest quarter, a bad look in today’s results-driven environment. Further, the stock took a hit after last month’s third-quarter report announcing weak guidance and that it would be laying off 25% of its workforce. As Shakespeare’s Hamlet once said — and eventually Nick Lowe once sang — you have to be cruel to be K-I-N-D sometimes.
Wood adding 74,783 shares of Nextdoor to her existing stake on Thursday isn’t a big deal when you consider that the stock is trading for less than $2 a share. However, she has now increased her position in the social platform operator for eight trading days in a row.
It’s one of her smallest holdings, with a market cap of $720 million, and that figure gets even smaller when you consider its cash-rich balance sheet. Nextdoor is losing money, but it’s not going away anytime soon. It may have posted a record net loss of $38 million in its latest quarter, but it also has a net cash position of $472 million that drops its enterprise value to less than $250 million.
Nextdoor has a lot it needs to turn around beyond just the widening deficits. Its weekly active users have slipped sequentially in back-to-back reports. The $1.39 it generated in average revenue per weekly active user in the third quarter is 2% lower than a year ago, down 14% since it went public two years ago.
Turning things around might not be as difficult as it seems, not just because its cash-flush balance sheet puts a lot of sand in its hourglass. The online ad market should turn around for Nextdoor if the economy bounces back in 2024 and, with that, experiences a recovery in margin erosion, revenue per user, and the bottom line. Growing the platform’s popularity will require a different lever to pull, but it will be easier to invest in user acquisition if the financials are improving.
Will 2024 be the year Nextdoor finally lives up to its ticker symbol? Wood apparently thinks so, making it her lone stock purchase on Thursday.
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