Nextdoor Holdings, Inc. (NXDR) Earnings Call Transcript & Summary

There we go. Okay. I know everyone's going to find their seats. We're all moving around between meetings. But in the interest of time, let's get started on the next fireside chat. It really is my pleasure to welcome the team from Nextdoor, Sarah Friar, CEO; Mike Doyle, CFO. Thank you so much for coming on the conference. It's great to see both of you in person. We spent way too much time on Zoom over like 5 years, and it's nice to sit down and have a conversation about the platform and what you're building in the business and really looking forward to the conversation.

So Sarah, maybe starting with you. What I always like to do with these conversations is you're building a business, you're on a journey, what have you built today? What are you trying to build for the long term? What's level set for those who don't know the company as well and so folks who understand your vision?

I love that. Thank you. That's a great open-ended question. So hopefully, everyone in the room uses Nextdoor. If not, you can't leave the room until you find out. So don't worry, I will be checking later. What is Nextdoor. So from a purpose standpoint, our purpose is to cultivate a kinder world where everyone has a neighborhood to rely on, very purpose-driven company. We think about a TAM where everyone in the world is a neighbor, right, the global TAM. And when you come to the platform, you're coming for this intertwining of community plus utility. We often get asked like when people come to Nextdoor, what is it that they do? They do many, many things, everything that happens around you locally. But if I were to bucket it, number one, they often come to give or get recommendations. So help me in my app earlier today was like help me find a professional resume writer for my daughter who wants to be a nurse, right? I'm like, wow, it's a very specific long tail ask. So recommendations is huge. 55 million recommendations to date on the platform for about 5 million businesses. And then I can talk about in a moment what that opportunity unfolds for us. Second reason people come to Nextdoor is often to give and get help. It can be under high duress moments where a platform that really [ things ] in moments of disaster. A real seminal moment for Nextdoor was when Hurricane Harvey hit in the City of Houston. That was a moment where the Mayor actually got on radio, got on TV and said, go to that Nextdoor App. 911 had fallen over, had gotten overloaded. And he said, go to that Nextdoor app because if you are on your roof and you need to get saved, it's your neighbor that's going to show up in a boat to get you. Of course, we don't all live in high duress. So the last week in California at 110 degrees, we had a lot of engagement on the platform, people checking in on neighbors, figuring out how to save power and energy. But it can go to; I lost my dog, lost my AirPods when I was running. And then finally another final big use case on the platform is our marketplace. We call it For Sale & Free. About 25% of posts tend to orient around that. Why do people come to Nextdoor for that? Number one, they come because we're very trusted, real neighbors, verified neighbors. So when you're selling that couch, you know that the person that's going to show up truly lives around you. Second reason they come is it's hyperlocal. So if you are selling that couch, you're not going to FedEx it. You actually need someone probably showing up, who's probably going to put on Nextdoor, I need a U-Haul or I need a flatbed truck. Do you have one? But they're going to show up and take it away. And then finally, there's a lot of community even in an area like For Sale & Free. So often, our mom may not want to just throw that bike away that her kid has, maybe adding to like what's going on in landfill, rather they want to upcycle, recycle and give back to the community. And it can even be a way to meet your neighbors. I could go on and on. There's tons of other things that happen. So that's what we've built to date, 75 million neighbors across 11 countries doing all of those actions locally. What do we want to build? We want to be the de facto place you go when you think local. So whatever it is, whether it's a community activist moment, whether it's all the way down into a commercial moment, we want you to come to Nextdoor. We want you to do that across the globe, and we want you to be able to do it in any neighborhood that matters to you, so you can belong. The big shift, when I joined, was shifting away from being the private social network for your neighborhood to instead being the place you connect with the neighborhoods that matter to you, so you can belong. So people care about many neighborhoods in their life. We learned this during COVID, the place they live, the place I holiday, maybe the place my parents lived, the place where my business is. And so we think that opens up even more opportunity for content because now it's everything that I just talked about, time multiple neighborhoods.

Maybe just one follow-up. As we examine and analyze the company in the years ahead, what do you think investors should be keeping in front of mind that would be proof points that you're proving out the vision? Is it just user scale? Is it time? How do you think about it?

Yes. So WAU -- so weekly active users is the metric that we share externally, and we look at very closely internally. So that's an easy one for everyone to look at. We chose weekly because over the long run, we do think that daily and we do believe that local should be a daily use case, but a lot of things tend to be a little bit more episodic in nature, and a lot of our product build was focused around weekly. But if you look at the work of the last 12 months, it actually internally goes well beyond weekly to -- if you look at our Verified Neighbor to WAU ratio, it's about 50%, so actually pretty engaged neighbor network, very engaged network. The WAU to DAU ratio, so our average weekly comes back 4 times a week. So they're coming back over 50% in that ratio by 4 over 7. The work we've been doing is then pushing those DAUs to actually reengage multiple times per day. So what I really love to give you is sessions, less time in app, but more sessions because I think what you would see is that there's been an even faster growth of sessions relative to WAU. WAU grew 26% year-over-year in Q2. Sessions grew even faster. And then related to that, our most engaged users. So people are finding true, strong product market fit. That group grew 50% year-over-year. So we know we're being very successful in that shift down the funnel. Those are the metrics that we look at internally how you see it all as in WAU. And then the second metric is revenue, frankly, showing that we can also build an incredible business model that goes alongside being the only neighborhood network in the world.

Got it. Okay. I can't avoid sort of the big 50,000-foot topic at the conference, which is the current macro environment. I said on stage in my last session and I feel like we've lived with macro volatility for 2.5 years now. So maybe that's just the new normal. But you're in the advertising business, the macroeconomic conditions continue to shift. What are you guys seeing in terms of macroeconomic conditions and how it reflects back into your business?

Yes. I'll take that one. So I mean, it is obviously something we take a close look at. But I think a couple of things are important to understand. First is, we're very early still in our monetization journey. And there are just hundreds of thousands of advertisers out there that we have yet to build a relationship with and introduce to the merits of our platform. When we think about all of the segments we can serve from enterprise to mid-market to SMBs, we're working with still a very small group today. And so we feel like even in a tough environment like there is, today, that there's still opportunity for us to be -- to capture those experiential budgets and work with advertisers to really understand what it is that's going to drive their campaign objectives, whether it's shifting brand awareness campaigns into direct response. We have the ability to operate up and down the marketing funnel to make sure we're relevant and we can perform even in a tough environment. It's also a story by vertical. And so for us, there are many verticals that perform incredibly well in the platform, and it's leaning in where we're seeing good results and helping those advertisers understand where in the funnel, they can experience good results if they're in industries that are experiencing more of the headwinds. Let we give some real examples. So for us, home services is performing exceptionally well even in the current environment and is an important part of our advertiser ecosystem. Tech and telco, travel and entertainment as people coming back to in real-life events. Those are tailwinds in the business. And where we're seeing -- we are seeing some headwinds on things like consumer credit, real estate. And so for us, having diversity of advertising on a portfolio is important and it helps us in a climate like this. The same diversity is true across customer segments. I mentioned enterprise, mid-market and SMB. For us, that mid-market segment is new. And so with the launch of our proprietary ad platform recently, it's enabled us to attract advertisers that are of a scale that need to be served under a self-serve model. And so for us, again, it's an engine of growth even in a tough climate.

Okay. Interesting commentary there. And maybe following up on it. When you're in the state of building your ad business and there's still inorganic tailwinds as opposed to just advertiser budget growth as a tailwind, how do you think about growing your advertising base, diversifying your advertising base? As you as a team go out and talk to advertisers, what are the unlocks, what are the friction you're trying to solve for to bring more budget, more diversity, more verticals into the platform over the long term?

Yes. So it's a great question. I'd start just -- I want to take a beat on our ad platform itself. So we absolutely view our strategy for monetization over the next couple of years to be self-serve ads for businesses of all sizes to allow them to participate in an Active Valued Community, right, which is the 3 words we use to describe our product vision, so ad first. There's a lot of optionality in Nextdoor longer term, which I'll maybe come to right at the end. In terms of growing the base of advertisers, a big chunk of it is just basic brand awareness. People are not aware of Nextdoor, why they would come to Nextdoor, why are users on Nextdoor. So one is just telling that story to an advertiser. Number one, we have a unique audience. So if you look at people who come to Nextdoor on a monthly or a weekly basis, a vast majority of them don't go visit platforms like Pinterest, LinkedIn, Twitter, that might be competing for digital or social media ad spend. Second thing we want to make sure we get across to advertisers is we have the household decision maker on the platform and it's an incredibly high intense audience, right? Why is Google the most effective ad platform in the world? It's because you're going and typing into a search bar what you're looking for. And if they can match that, that makes it very effective. Nextdoor is equally high intense. I told you like the reason people come, one of the first reasons is often they're looking for something, a recommendation. Help me find a plumber, help me find a professional resume writer, right? And so if we can serve an ad against that search, it's incredibly effective. And it's going to the person that can actually make the decision about what's in the fridge, what car you driving, what holiday are you going to take? So an incredible high-intense household decision-maker. The third thing that really separates us from the pack is this idea of local -- hyperlocal community. So we are great for brands that are looking for online to offline call to action, so particularly brands that tend to have a place in the community. Might be the local Walmart, might be the local Home Depot, might be the local hair salon, right? But anyone where there is that sort of call to action, you see us really outperform any benchmark. And some of our work over the last year has been building those APIs to measurement platforms, so we're not just grading our own homework, but we're actually showing you from an external third-party that we can do this. And then finally, community is everything. Brands don't want to just show up to kind of sell you stuff. They want to show as someone that's a vital part of you, your community, like what's important to you. So if you look at a brand like H&R Block, they came to us and said, hey, we want to show communities that we're not just here for tax season. So we created a campaign that's now run for multiple years called Make Every Block Better. We go out with a campaign to say, "hey, H&R Block, do you know them? They're in your community. They want you to put forth like the best ideas of what you want to invest in for community. We do a campaign. We do a contest. We pick the top 10. H&R Block actually then takes their employees out to do the thing. It might be building the baseball diamond, creating the community garden, cleaning up the kids play park, like these are the examples of showing up as a brand that cares about community, but then reflects back to say, and by the way, we're in your community every day of the year, come to us if you need help with small businesses or whatever. So there's a really interesting sales pitch when we get that foot in the door. We need to make sure that our brand awareness keeps building so that we get that foot in the door.

Moving beyond just brand and awareness of the platform and who the user is, how do you guys think as a team about what needs to be built maybe at the back end of the business? When you think about attracting SMEs, providing measurement and attribution, attracting middle-market advertisers, building auction density, the blocking and tackling beyond that, how do you think about some of the opportunities and how you have to allocate capital against that to build that density over time?

Yes. So this is massive for us right now is building up that platform. In terms of the 2 areas that we are most invested in from an R&D product perspective is building well. We can talk about all the levers we pull there, but then building our own proprietary ad stack. So what does that look like? Front end, I'm simplifying massive like front end, back end. Front end is what we call the Neighborhood Ad Center. That's a self-service piece that Mike talked about. When we get that up and working, it really unlocks whole chunks of opportunity for us. Q2 was about getting SMBs onto that NAC, Nextdoor Ad Center, so that now they can self-serve. What they've been buying previously from us was kind of a local deal, local sponsorship. It's actually a static card in the feed. Now that's all harmonized, so their ad is competing with everyone else who's advertising. In many cases, they will win because an SMB can actually often pay a much higher CPM than a broad-based enterprise advertiser. For mid-market, that is what we're working on for the next couple of quarters is really that shift to helping them be fully self-serve and then ultimately getting to large enterprises and even agencies. Our largest advertiser in the U.K., for example, they're a big client, but they want to be on our platform every day. They do 30 to 35 different creatives, and they literally are switching them out to figure out in what neighborhood is which creative working. And they don't want to have to go through Nextdoor to do that. They want to do that all by themselves. So that front-end build is really vital. But the back end is potentially even more important, that's what we call our Nextdoor Ad Manager. This is the brains of the operation. And when this is live, this will allow us to use all of our proprietary data to be really smart about the right ad to the right person at the right time. That is 2 benefits. Number one, for the advertiser, best performance ever when you can do that well. But also a great experience for the neighbor because in effect, if you're looking for something like you say, I want lawn care and we put in front of you, leave home or someone, that is a perfect moment of solving your job to be done but doing it through what doesn't even feel like an ad at that moment. Today, if you think about Nextdoor, we have an incredible amount of proprietary data. It's starting with the fact that we have placed, so very few advertisers in the world know where you live. They have to follow you around the web, drop cookies. Apple is trying to stop you doing that. Google is going to try to stop you doing that. You tell us walking in the door where you live because then we put you into the neighborhood that matters to you. After that, we have all of the same data that others talk about propensity data, like what do you spend your time on? What groups do you join? What interest do you have? But then finally, coming back to place, we can overlay interesting third-party data as well to really augment what we know about a given individual or a given neighborhood, things like census data. So say, I'm an advertiser that wants to -- I'm Univision, and I want to go after a predominantly more Latino neighborhood. I can do that by overlying census data. So when we're there, it unlocks a huge outcome for Nextdoor. Where are we on that journey? That would be the right next question to ask. Our goal between here and the end of the year is to bring all of our SMBs over on to that proprietary stack, partially because they're at massive scale. So it's a good way to test, but they're also maybe not as sophisticated as a large enterprise. So it allows us a little bit more leeway to be built. And then through next year, the goal is to bring all of the mid-market and large enterprise over. In the interim, our ad platform works quite well. Given what I just told you and the inability to use a lot of our proprietary data, it's still very effective because it comes back to a super high-intense decision-maker audience.

I'll joke that if you harken back to your own past and ask your own question, then I don't need to be up here.

Fully automated.

So let's not make me obsolete just yet. I want to go back to users and engagement. And what you see in terms of the core uses of the platform and what your vision is for how you can sort of watch them evolve and develop going forward? And then how those line up against your broader business goals where you solve for what users want from their time, but then also there's monetization on the other side?

Sure. Absolutely. So as I said, WAU is the metric that we share externally with all of you, the weekly active users. And so what are people doing as they come back to the platform, I already talked about recommendations For Sale & Free, that trusted information, that ability to give and get help. So when you think about what we're building, what have been the big focus areas of the last couple of quarters? Number one has been our notification engine. And this goes back to data. It's actually the reason I came to Nextdoor was this incredibly unique data set. When we can apply ML, data science and machine learning to that data, we can be so much smarter about the notifications that continue to bring you back and drive more usage, drive new users even to the platform. So the big lift that you saw overall and the fact that we grew on our COVID bump, but then grew again in 2021 on our COVID bump -- 2022 on our COVID bump is really because of that smart notification piece. The second big investment was Connections. What Connections did is it started to give us a signal of who you know on the platform. If you think about the other very large social media platform that was perhaps created, first of all of us, their #1 growth hack in the beginning was as you joined, they got you to sync your contacts and then they just pushed it out into your network and said, hey, Sarah is on this platform, you want to come join our, because there's this great network effect. Nextdoor never really made use of that because the founder thinking was you don't know your neighbors. That's why you're coming to Nextdoor. So it doesn't really make sense for us to ask you who you know. But there's a point at scale where it turns out you actually do know people who live around you because now we're in 1 in 3 households in the United States. And there's a point in time where we know that if you invite other people, like if I invite you, we don't live in the same neighborhood, but I know now that you're going to join a neighborhood that exists, that's going to be up and running and has liquidity. So you're going to have a good experience. So we finally went back to that WAU and said, okay, let's build the infrastructure that allows people to give us a signal of who they know, which is what we call Connections. As we get smarter about it, we're able to put more and more people in front of you that you likely know, which causes you to click, causes you to create the connection that allows us to better personalize the feed. When you come back into the app, suddenly the app feels more and more like home. It keeps you coming back again and again more frequently. So we're benefiting from that move at the moment. As we look forward, now we feel great about the engagement piece, how do we grow top of funnel of segue with connections because the other piece of the puzzle we now have is a whole data set of people who are not on Nextdoor, but who you know, and we want you to make that invite for us, that nice warm invite. We don't want to do it in kind of a growth way where we just suddenly blast your network. You're like, oh my god, I joined Nextdoor. So everyone in my address book got an e-mail from them or a text message from them or something, but we want to do it in a smart way. So doing it at a moment in time where you've just had utility, right? If I have just put my kids' bike on Nextdoor, and I can see that I put the flag down immediately to say it's sold or it went, then sending you a message at that point in time, saying, hey, Sarah, looks like you just had a great experience, would you like to invite other friends into this platform, right? There are just smarter ways for us to use this as a viral infrastructural growth element to the platform.

Got it. And when you look at the U.S. market versus some of the international markets you operate in, are there different examples you're seeing of sort of user behavior or user growth or maybe bringing Mike into the conversation how you have to line growth investments behind user growth and dynamics around growth on the platform that are different in different geographies or different parts of the world?

Yes. Let me take that one. Actually, we take great comfort in the fact that there aren't many differences. And so we're seeing basically a very similar penetration curve as we enter new markets. In fact, even a little bit better than the US because of the benefits of -- or the experience in benefiting from the product investment we're making here in the US. So when we enter new markets, we have the ability to share content now that we have created the concept of allowing content to travel across multiple neighborhoods. We have a very effective neighbor acquisition channel through our paid mailed invitation program. We have greater awareness and word-of-mouth, and it's allowed us to grow in those markets more quickly. Using the U.K. as an example, we've been able to now get to 1 in 4 households. We're 1 in 3 in London. So incredible penetration, but also it's important to advertisers. It gives them a scale of audience and also density. So not only is the member acquisition curve very similar, but our path to monetization is as well. And that's true in other markets, all at different stages of -- in their evolution, but we feel really good about the model using product to drive growth and then having that accelerant of paid marketing to drive growth as well.

Got it. Sarah, want to come back to some of the themes you sort of said through the first part of this conversation, which is, you've got the user momentum, you're building scale, you're building out the advertising side. bridge from where -- what you talked about earlier, you talked about sort of local action and its appeal to advertisers to sort of close the loop. How do you think about going from building advertising scale and local call to action to full-fledged commerce on the platform? How do you think about bridging that gap and building sort of a wider array of monetization opportunities on the platform?

Yes. So I kind of left a little kind of pin in that. Nextdoor is a platform that I think has an incredible optionality. Now we need to get the ad platform right. I think I don't know what Facebook's revenue is annually, $70 billion. No? Is it even higher than that? Okay, whatever. It's a good goal to get to just getting your own platform, right? So don't move too quickly. That said, social commerce, we know is a really growing market from here. On Nextdoor, we already know that over 70% of neighbors give a recommendation, 70% of neighbors or greater have said they've been influenced by a recommendation. And so the ability to add in a more social overlay to that commerce absolutely feels like a huge opportunity. One of the examples I always give, even from an advertiser perspective is when I want to buy an electric vehicle, it's not just about a GM ad versus a Tesla ad, versus someone else. It's actually about the questions I want to ask locally, right? For me, the biggest question relevant to my decision on EV is can it get me up to Tahoe in the snow? And until someone who lives close to me says, yes, you can do that. I'm kind of still not totally in the market. Or often when you're buying electric vehicles, the question is, well, how did you put the charger in your garage? Like who's the local contractor that could do that for you. So it's not just about the purchase, it's actually about everything that surrounds the purchase. The other avenue that we have is, I think, mapping is a really interesting interface for Nextdoor. Maps have always been a core part of what brings people joy on the platform. Treat Map is coming up. So for those of you that still do Halloween candy with your kids, Nextdoor is the brilliant place to go to find out who is on that particular trail that you should be on. But if you just think about almost everything we have, it has a sense of place associated with us. And so what we'd love to see, we have a new surface called Discover. Today, it's still more of a card interface, but our vision is an interface that is much more of a flip between a map and/or a card. And that allows you to do things like events near me. Okay, I can see all the events, but now I flip it into a map situation, and I've got the events near me on the map. But now imagine that those events were actually you could drop in and maybe shop ahead. Like maybe one of the events is a wine walk in your local town, but you've got like the wine shop, you've got the local cheese shop, you've got the local band playing, could you do some purchasing ahead of time? There's just some really interesting things that you can do when you start adding the layer of location over on top of commerce, along with the actual neighbor recommendation. And so I absolutely think that is our future to drive much more direct, person-to-person B2B, B2C, C2C type commerce. But again, I don't want to fly there too fast because I think our opportunity just in pure ads is so big right now.

Understood. Investment mode execution...

Mike is sitting next to me. He's like, don't leave ads too thin.

And we've got to bring -- let's bring Mike back in on the ads piece because -- and happy to take answers from both of you on this from a perspective. But ads at the end of the day is a relative business, right, ROI, pricing, what are you delivering to advertisers? How can I move out of the experimental budget into the real money budget and sort of scale and build diversity? What do you see as some of the key friction points you're solving for? And I know the message has been very clear this year that this is an investment year and executing against this opportunity set. It's probably not even going as fast as you'd like it to. But at the end of the day, what are you unlocking that you're hearing back from the advertising community? And then what do you think the resultant will be hearing about ROI or pricing or density on the other side of this in the next...

Sure. Let me start there. So I think the problem that we're solving for advertisers is how to create hyperlocal messaging at scale. So how do they show up in neighborhoods across the markets that are important to them and whether they're introducing their products and services or trying to influence the behavior to come into a store to make a purchase, to pick up the phone and request service. We allow them to have a very customized message that's relevant, most relevant for a local area. And that's what we hear from advertisers that they truly value. And in fact, what we hear most from them is they want more of it. They want scale. They want to have a larger unique audience, and that's really fueling our ambitions to continue to grow our weekly active user base, and they want targeting. And that was a real decision criteria or catalyst for us in deciding to build our own proprietary ad platform to take advantage of that first-party data that we have that Sarah mentioned that is so rich and valuable to bring it to the benefit of advertisers. And we hear that time and again. Now the other areas that you mentioned are all very important as well to be able to make sure we can measure the effectiveness of other spend that we can customize the objectives of their campaigns up and down the funnel. Those are all areas where we're performing well today and will be part of our new ad platform experience as well. But it's really important to the retention of advertisers. And for us, as we think about scaling our revenue base is creating an always-on relationship with those advertisers, direct relationship where there's evergreen spend to really help us scale the revenue base.

I want to take Mike's answer and bring it back to you, Sarah. You injected earlier the rise of privacy, some of the broader industry changes we've seen in the last year. You haven't called those out as reasons that revenue has collapsed or platform has collapsed and all these things that we've been dealing with in the broader digital advertising landscape. When you think about the signals and the intent that's being expressed, talk a little bit about what Nextdoor looks like in a world of higher privacy, more device -- data staying on device and how that might work to your benefit over the next sort of 3 years to 5 years?

I think for us, it's actually been more of a tailwind because it does bring advertisers back to the table to talk about where you're getting your data from and you're going to have more or less of it in the future by being proprietary. People have to log in, they're on the app, we know exactly who you are, we know where you live, right? It's a beginning point for an advertiser where they're not worried that our data is going to be diminished in any way by some of these changes that are happening more broadly in the landscape. And it's allowing us to kind of catch up. As I said, today, we're not even really utilizing a lot of our data and yet our ability to target and show performance is already quite high. So that's why I get very excited about where we're going. There's another angle on this, which I think is also beyond just pure privacy. It's also the kind of welcoming platform element of like how are you dealing with things like moderation. And this is a place where I think Nextdoor has been leading edge. Despite our smaller scale, right, we're 700 people relative to some of the biggest platforms out there, I actually think we have innovated and it's been noticed publicly, right? We were, at a time, 102 years in a row company are really around our work here. So what have we done differently? Number one, we verify that you're a real person coming on the platform. So there's less concern from brands, for example, around things like bots, like if I'm buying all these impressions, are they real? Second thing is, from a moderation standpoint, we use community volunteers. We call them our neighborhood team. They're an amazing group of individuals that care deeply about their community. And what that has allowed us to do is to create moderation of scale. So we have a transparency report. You can download it off our website. We talk about 235,000 active neighborhood team members. That makes us bigger in terms of moderation than most other platforms because they're paying for it in a different way. And in our case, these are people who are coming because they care so deeply. The third thing we've done is with technology. So it started with something called Kindness Reminder, which was an infrastructural element. When you're posting on the platform, if we see that what you're about to post is likely to get moderated, we actually pop up something called Kindness Reminder to bring you out. It's called interrupting bias. So it takes you from kind of your dinosaur brain back into your frontal lobe because it causes you to read. You could read anything, frankly, but we tell you a little bit about kindness. And then it insinuates that in a future state, you're going to be reviewed in a negative light. So about 30% of people actually edit their posts. The more -- even more exciting thing from last quarter was something called constructive conversations. So now we're getting proactive in getting ML into the mix, not just data science, but true machine learning models. And what we can tell is when a conversation is starting to heat up, that ML model is scoring the likelihood that the next comment is going to be something that will get moderated. And so before you even start typing, the ML model says, this is probably not going to be good. And so again, we pop something up, and it just reminds you that you don't always have to respond. Sometimes it's better to take the higher ground, and it gives you some tips about how to actually take the heat down in a conversation. And sometimes we even just time you out. You can't post for 60 seconds. And all of that is in the spirit of a great business model because we know that when people come to our platform and see a lot of the toxicity, they really put off by it and they don't come back weekly. They don't become active users at the platform. So that's a place where I'm super proud. It's like a -- it's a one step away from pure privacy, but it's again about how do you stay being trusted and be seen as a welcoming platform, even as kind of the world around us gets very volatile and very choppy.

Understood. Okay. Now we only have a few minutes left. I do want to try to hit a couple of quick topics. I've learned long ago to listen to Mike on earnings calls, and he's been very adamant this year, you're in investment mode, expect us to invest and the like. But longer term, there's been a pivot among investors of focusing as much on growth and profitability. Give us a little bit of a sense of some of the levers we should be keeping in mind as the company moves towards profitability in the next couple of years?

Yes. So it's true. And we have -- we're not [ so in ] debt. I mean, we have actually -- our answer is a bit nuanced. It's really important just to recognize where we are in our journey in building the product and also in monetization. And the biggest driver of profitability is scale. And so for us, by investing in the product, we're going to drive engagement and monetization follows. And that's when we reach profitability and that's when we'll see a true meaningful improvement in EBITDA margins. But what we want to make sure we're not doing is solving for a small opportunity on the other side. And by being too shortsighted on where we're investing in the product, we're going to fall short of capturing the huge opportunity in front of us. We are continuing to invest in mostly people. So for us, building the product is building the team. Sarah mentioned we're 700 people. About half on the product side, so product development and engineering and we're continuing to grow that team. Now, we had great success in building the team in the first half, and so we decided to go a little slower here in the second half and be more surgical about adding revenue, client partners to take advantage of the supply that we're creating and then a few key roles and really make sure that everyone is fully staffed up on the right, most impactful projects. And we're thinking about now those roles that we want to add in 2023. But we are continuing to invest and to grow. And that's really -- it's a differentiator in today's market, and it's important for us to be successful in the future. Now the reason we can also do all this, I mean this is where I'll finish, is that the long-term EBITDA margins in our space are well established. Our peers have demonstrated with scale, what happens and what that journey is on improving EBITDA margins. So we feel confident about our ability to get to those same levels. And in fact, we have forced ourselves to have the discipline even in investment mode of trying to put a couple of EBITDA points on the board each year. And so we have shown an improving margin. We are still at an EBITDA loss today, of course, but we continue to do that, and we want to have that gradual march to profitability and then more attractive margins.

Okay. Understood. Next last question. Sarah, bring it all together for us. Your management team, as you go back and communicate with your Board, how should we be thinking about the capital allocation priorities of the company? You've got this growth opportunity. You want to invest against it. But you also have a really strong balance sheet at the same time. How should we think about all the various choices for your own capital going forward?

Yes. So we do have a very strong balance sheet. We have about $660 million on the balance sheet. And so when we think about where could we go put that to work, number one is still just investment, organic investment back into Nextdoor. And as Mike said, that's really via growing our population of employees. So we want to keep growing in areas like prod dev because that's the lifeblood. It's building the product. I've already talked about the fact that we have big aspirations, whether it's how we continue to grow well through investments like Connections and so forth, how we grow our ML data platform and then also how we grow our ad platform. The second area of investment that we certainly look at is inorganic, so M&A. We have done some very successful acquihires through the years. And so that gives us confidence that we can do this well. And of course, there are areas like messaging the ad platform itself where if we found the right candidate, we absolutely are open to an M&A opportunity. We have finally decided to do some stock repurchase, $100 million worth. And really, that was the signal that at this price, we felt it would be very good value to bring back more shares because at some point, when we turn the corner to EPS, profitability and so on, right, you'll get that advantage of a lower share count for better growth. Our Board was supportive of that. Our Board has, in fact, been buyers of our shares here as well. But I think the first 2 are the bigger areas of interest. I think the repurchase was opportunistic, and I think at a good scale at $100 million. But I think the first 2 are where we are continuing to look from here.

Okay. And last one for you. I've been asking everyone all week, goals, predictions, how you think about your business, how you think about the broader industry you operate in? Any outside-the-box things you want to share with investors about the way you're thinking about how the world could develop in the next couple of years?

Well, with like all the volatility that we see, that is -- we could sit here forever right now. What am I excited about? I'm certainly very excited about social commerce because I think Nextdoor has an incredibly differentiated footprint. I am going to like say something probably drive you crazy. But Web3, I mean I don't know if other technology companies have talked at all about Web3, but tomorrow is the merge, it's happening, and everyone is super quiet about it because crypto is no longer the greatest, the second coming. That said, it's a big shift to suddenly have a blockchain like Ethereum potentially come down in terms of energy requirements by 99%. I often get into conversations when you think about that age of community, that age of Web3 distributed autonomous organizations. The neighborhood is perhaps the greatest instantiation of that. So I think there are even some interesting ways to think about how those forces and Nextdoor come together over time. So I said, it's probably not what you've heard from anyone else on digital media.

That's what we hope to hear from people.

But I think it's fascinating to think how that whole shift happens over the next 3 years to 5 years.

Well, first, Sarah, Mike, thank you for taking the time. I really enjoyed the conversation. And second, please join me in thanking Nextdoor for being part of the conference this year.

Thank you.

Thank you.