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

Thanks, everyone, for joining this morning or this afternoon, depending on where you are. My name is Raj Shah. I'm the Co-Founder of Stoic Point Capital Management based in Palo Alto in California. I'm pleased to have Sarah Friar, [Mike Doyle] from Nextdoor here, joining to have a chat about the business. The future of the industry and so forth. I thought maybe I'd open it up with a few comments just to start with about why we think this is an interesting opportunity. Why we're excited to do this, what we've been wanting to do it for some time. One of the best tools we rely upon as investors is pattern recognition. And at Nextdoor, we see a great deal of parallels between the monetization journey that they are on and what we've seen out of other social media companies in the last decade plus. However, we also recognize investors tend to be drawn to the shinier things that have maybe high engagement used by teenagers, a lot WAU growth. And they kind of just make the assumption that monetization is easy and we'll follow that. Conversely, investors tend to be skeptical of those that have maybe less frequent engagement but engagement that could be deeper and easier to monetize. And so we're taking the other side of that [indiscernible] here. We think Nextdoor has some key advantages that are going to become apparent over the next couple of years as they roll out their ad platform, 1 of which is their users are more commercially motivated. -- when they're on the platform. And that's a large part of the reason they're there to begin with and why they visit more and more frequently. Two, we think Nextdoor generates a lot of valuable first-party data on the platform, thanks to the interactions that are taking place there. And that is especially going to become more and more relevant and more important and differentiated in the privacy-focused world, we're entering into. At current levels, we think there's a lot of asymmetry in stock. We think given the company's balance sheet and the business model and unit economics here, the business has a lot of latent earnings power underneath it. And finally and perhaps most importantly, probably the thing that I think is going to become most evident on today's call is, we think very highly of the management team and Nextdoor and the Board behind them and their ability to execute. So on that note, thank you, Sarah and Mike, for taking the time to join.

Thanks so much, Raj, for having both of us here. .

Absolutely. So I'll start off with some questions and dive right into it, but I'm going to be monitoring my inbox as well. So if there are participants who want to send questions based on the conversation over to Sum Zero, they will make their way over to me, so I'll make sure to include them. The way I'd love to do this is maybe perhaps a bit differently than the format of a traditional fireside chat at a sell-side conference. I think -- there's obviously a lot of information that the company has done a great job putting out there about what the business is and how it works. So -- maybe we can skip over that and jump right into things that I think probably matter most for investors, which is monetization and the path to that and then ultimately, profitability, which is obviously related. It's clear on paper, there's a monetization gap between where Nextdoor is and where its largest peers are. And I think the company has actually put slides in its decks even from when it came public to today. So what I want to spend time on today understanding what causes that gap to close and how to think about the drivers there and what we, as investors, should be monitoring. So maybe Sarah, and I know you're a little sick from coming off of a lot of travel. So feel free to direct these or might take them to the extent it's more relevant for you. Maybe we can just start with user growth. Sarah, I think you mentioned it was in the last couple of quarterly calls or at a conference or 2. Nextdoor is 1 of the only -- if not the only social media platform to really be able to continue to grow off of its post-COVID peaks. And so on the 1 hand, you are growing faster than your peers. On the other hand, it's obviously off of a smaller base. I'm curious just to dig into that a little bit deeper. The company has been around for a while. The growth of Nextdoor has sort of been 1 of steady compounding user growth as opposed to the kind of the hockey stick growth that a lot of people, I think, are used to from earlier stage social media platforms are in that companies. I'm curious to think about why that is? Are you spending behind user growth? Are users coming organic? And maybe you could talk a little bit about that to start with.

Great. Thank you, Raj. And yes, thanks, everyone. Usually, I'm like a 5 a.m., out of bed, my sell-side genes are still a little strong on that front. And I am a little lagging exact. I can't remember the last time I felt a little sick. So bear with me on that front, but I know I got really good wingman and Mike. So he will definitely step in too. So yes, on the user growth front, let's start there. We'll probably come in a moment to just the why of next door. But it is definitely worth noting that we are a platform that COVID clearly gave us a bump that gave a lot of social media, just Internet type stocks generally a huge bump we continue to grow off that. And in fact, if you look since Q1 of 2020, we've actually grown WAU, weekly active users, 72% and U.S., We almost 60%. So we have continued to grow on top of what was a spike for us because I think we showed in that moment to neighbors everywhere, the high utility and then also the community value of Nextdoor. I often say we're an incredibly engaged platform. Once we get you, once you know about us and hit the top of funnel and come join and I'm going to talk about the heartbeat of Nextdoor in just a second. We're a very engaged platform. So 50% of our verified neighbors come back weekly, 50% our weekly actives come back daily. In fact it's a little bit more than 50%. It's 4 out of 7 days. They come back. And 2 years in, 50% of Verified neighbors are still active. And when I noticed it when I'm hiring, so when I'm talking to people who might be coming from a Twitter or a Pinterest or a Snap, they're really wowed by those numbers because they are better than those other platforms. And why would that be? I mean a lot of it is the value of what we do. Once we get you into next door and you can see the value of what's going on around you locally, there's almost something to do every hour of the day, every day that's going around locally. Like what's that noise? Or do we have a hurricane blowing into town or I need a plumber today, right? The list goes on of all the reasons you come to Nextdoor. I'm gonna talk a little bit about you asked kind of how we invest, how we grow. So think about Nextdoor, think about the funnel, it's a very kind of tech term to use, but how do we get people to come in the top of the funnel and become that verified neighbor. Well, first and foremost, there's kind of 4 areas I'm going to go through. There's organic, so people who come because of word of mouth, they hear about us. There's paid, and I'll talk about that. And then there's 2 loops in our ecosystem, an invite growth loop and then a content growth loop. So let me start, first of all, with organic -- we are absolutely continuing to trend up in terms of overall brand awareness. In the U.S., we're now in 1 in 3 households, in the U.K. we're in 1 in 4, and what that does is you just become part of the conversation in the neighborhood. People will say, "Oh, you just moved here, you should get on our local Nextdoor. -- or we end up in kind of the Zyga stuff in a moment? Like if any of you have been watching Netflix recently, I feel like every Netflix show, I turn on, somehow has a Nextdoor moment going on in the middle of it. Jimmy Kimmel that's [indiscernible].

Yes [indiscernible].

Exactly, yes. So beef is a good example. And so all of that helps. We, of course, do invest a lot in areas like earned media, when we can find a story that's really starting to trend. It often ends up in local media. There was a story last night in the San Francisco Chronicle. It's kind of a tearjerker, but a local man who is dying of cancer, he's in hospice care right now. But he was a photographer. He loves to put great photographs on Nextdoor when people realized how sick he was they have started to put photographs back on to effectively say thank you. You brought light into our neighborhood, now we want to bring some light to you. And of course, the local paper pick that up. It's an amazing story. Those are posts I've seen as well, even though I live up in the North Bay. So there's a lot of earned media. And in fact, Organic growth has been running closer to 80% of all the new neighbors added have come organically. I'll just go to pay because it's kind of the opposite side of that. When do we pay, how do we pay. So if we pay to bring neighbors to the platform, it's really in 2 areas. Number one is we do our own performance marketing to get neighbors to join. And we'll often do that in new countries where we're still kind of in the cold start moment where we need to get a critical mass. The way we typically do that is a very unique to Nextdoor channel called the invitation [letter]. So as we've paid invitations. So if we will ping you and say, "Hey, would you like to invite 100 more neighbors"? If you say, yes, then we'll actually send a letter on your behalf, it's snail mail. It turns out it's very neighborly. It performs incredibly well. And it's very scalable. If you think about it, we're not stuck in like a Google channel, an SEO channel where we're somewhat to the win of a Google. This is our channel, and we're super efficient in it. But when we're in a time where we're controlling costs, we often kind of cut that spending down to just keep managing our costs. but we know there's a good ROI on that paid. Partnerships is the other one that we've done some experimentation on coming preloaded on, for example, Samsung devices. It's not massive for us. I think we'll just continue as we grow to do more of that, It's typical what other sites do. Let me talk finally about the 2 loops that are actually part of our ecosystem. So invitation growth loop, this is in the platform itself. So not the paid invitation I just talked to, but rather, how do you do it all using bits and [bytes] so it's effectively free. One is neighbor-to-neighbor and 2 is what we call business to neighbor or organization-to-neighbor. On neighbor-to-neighbor, we've been doing that for a long time. When you're in the app, you'll often see, would you like to invite someone A couple of years ago, we launched something called Connections. Connections allows us to contact sync your address book, and then we end up with a full repository of people. Some folks who are already on the platform. So that gives a signal of who you might want to hear for -- hear from, sorry, that story I just told you about Robert Stankey here in San Francisco. The reason I've seen his post is because some of my connections in San Francisco have been reacting and talking to him. And so therefore, that content carries further because my connection is interacting with it. We inference that therefore, I might be interested in it. But that we also end up with a whole repository of people who haven't joined the platform, and now we can send an invitation electronically to say, hey, Raj, your friend, Sarah is on Nextdoor, here's something that just happened. You might be interested in joining. And of course, with generative AI, which I know we'll get to, we're not able to make a lot of those invitations more and more personal, so they perform better. And then the second is business to neighbor. Why would a business invite neighbors effectively invite their CRM. Because when they get more phase, which is a way to connect to a business or more recommendations, they do better. They show up better in search. They do better when it comes to even landing on their page. People are more likely to respond to their call to action. And then finally, the growth loop that drives people is when content is created on the platform, we are able to notify people, so we send out a notification. We can put things into SEO, like best places, what are the local gems that neighbors are talking about. And then finally, that's another place where we've invested a lot in partnerships to put our content out on to other people's sites. And the best example today I would talk about is Bing Local and MSN, where if you're on those sites, we performed really well, like we're literally their premier type content because it's very dynamic super local. And when people click on it, they see the post. But at that point, we invite them to either join or log in, so it drives both engagement and it drives new sign-ups. So just it's -- that was a lot, but I wanted you to explain that a layer cake approach, but that's where we've been so successful in growing.

And if we put a headline on it on all of that, it's very helpful detail in terms of what's paid and unpaid and call the unpaid organic or whatever you want to call it, what percentage of the user of the ads in [indiscernible] are coming from that sort of nonpaid channel, maybe overall.

Yes. In the last couple of periods, it's been 70% to 80%. Again, because we've taken down a lot of our paid spend to keep managing our EBITDA but we can keep growing without that EBITDA. And in fact, unpaid VNs grew 29% year-over-year. It's a big area of investment for us.

Got it. Got it. That's helpful. Okay. And then [Harry], you mentioned before, I think we started the call, you've got -- your sell side had is still somewhere there. You pull out the shelf. When you need to. And as we talk about pattern recognition and about your peers out there, I'm curious from your perspective, who do you see yourself sort of comping most closely to from either just a business standpoint or from where you are in your life cycle? I know the company has called out interest in Snap and some of the others and some of the IR materials. I'm kind of curious where you see sort of parallels or differences between yourself and some others that are out there.

Yes. I mean, Nextdoor is a very unique platform. No 1 else does local. No 1 else has this local knowledge graph. Why -- I've talked a little bit about why do people come here, they come to get trusted information. So that's why we work with over 5,000 public agencies from 10 Downing Street to the local fire department. They come to get help, get that local perspective, and they come to build real-world connections. So this focus on utility plus community is different. Most social sites, like you mentioned, the Pinterest or Snap or TikTok or whatever, but it tends to be you plant your flag and own your graph. Ours is local, but then a lot of it is about entertainment, frankly. Ours is very much a utility first move. Local is tough. It's tough because of aggregation. So if you look at how many people have come into the space like Facebook came in with Facebook for neighborhoods and then Facebook ledt because it's actually very hard to get started. That's part of, I think, why this network is a little bit of a slower burn, but it's also what creates a huge moat once you have it. Because once people are on and you have brand recognition and they're getting utility, they never leave. That's why I started with the engagement piece. In terms of -- from a business perspective, you could certainly start to talk about companies like Yelp maybe having some similarity. I think where we would say we're different from a lot of those marketplaces is we own both sides of [indiscernible] marketplace. Like what I find is a lot of those companies salivate at the consumer base we have, which I know it's a big part of your thesis on why ultimately it will be an amazing monetization opportunity as well. So today, we have 3.9 million pages claimed by SMBs, and we have many, many more where the page exists and has recommendations typed up, but the business hasn't yet come in and to change that. And then finally, I would say our go-to-market is different in areas like the business side because the vast majority of why businesses come, they come organically. So we're not paying them to come. They usually start as a neighbor and then they bring on their business persona. And because it's very self-served to go sell them on ads, we don't need to build out a scaled sales team, like I know Yelp did, for example. So I think it's a much healthier business model with a much higher gross margin. And when it's built, the ability to monetize its recurring revenue effectively out into the future of [your DCF].

Got it. That makes sense. I'm glad you pointed out Yelp because that was 1 of my questions as well. And I know some investors have thought about that if they're thinking about bracketing sort of the peer set, maybe of interest in Snap, oh and then Yelp and the others. So that's helpful context. Well, look, maybe I'll give you a break, to hear from [indiscernible] to have some tea, and [indiscernible] ino mike for a question or 2. Mike, related to all of these topics, the KPI that investors tend to look at the most is obviously ARPU. And Nextdoor had been experiencing quite a bit of ARPU growth prior to coming public and for several quarters thereafter up until really back half of last year, the denominator, which we just talked about user growth and that ARPU has continued to trend pretty nicely. And as you mentioned there, It's 70% organic. But the revenue side has fallen short. You're obviously not alone there among these peers that we talked about, but someone could easily take a look at next door and say, look, if this platform is so under why even with what's going on in this current environment in the digital ad recession, are ARPUs falling? And why did that happen? Maybe is it due to customer exposure, concentration what? And then thinking about what the drivers will be to get back to bridging that gap with where you are versus your peers?

Sure. So I think the -- I may explain through 2 different lenses. One, overall revenue, but specific to your question on ARPU. I think what Sarah has explained this morning is where we think our platform is very differentiated and really the only opportunity to own the local graph, and to be able to bring both utility and community to neighbors where investors should find comfort, though, is our monetization model is actually quite familiar. It's very similar to our peers. And I think we know to [indiscernible]. And we're very early in that monetization journey, and we'll talk today a little bit about the investments we're making in building our own proprietary ad platform, which is the next evolution of our monetization. But we are really focused on what drives monetization, which is engagement. And for us, that's the most important thing. So increasing the base of weekly active users. So having a large unique audience, but importantly, bringing them back to the platform more regularly. So a lot of our investments has been in AI or notifications program to bring content -- relevant content in front of neighbors at the right time with the right frequency, to trigger their behavior to bring them back to the platform and then engage them either in content or in getting things done on the platform. And that increase in sessions in the very short term has put some pressure on ARPU as an output metric. But we think it's absolutely the right step to take to bring them along and encourage them to come to the platform for a variety of uses. Where we're putting equal focus now is on driving depth of sessions. And when we bring you back rather than just engaging with the story or the headline or the first sale and free posts something that might have triggered you to come back is to encourage you to explore other services on the platform, both to -- could be to react, it could be to create a post, it could be to ask for a recommendation to buy or sell something. And with that increased depth of session, that really creates more impression opportunities, which is the monetizable unit for our advertisers. And so it's really about that path. So making sure first, we're driving the base of WAU, bringing WAU back to the platform regularly and then now increasing the base of impressions. That's what's going -- that's where you'll see the result really in ARPU. There are other things that we can and have done in the past to optimize ARPU. So things just like optimizing that supply, so making sure we're filling as much as we can when we've created those ad opportunities, making sure we're doing it in a targeted way. So the right advertising message to the right neighbor at the right time, so that's driving performance. and ultimately will help to drive CPMs up as well and when [indiscernible] getting the result out thereafter, and then things like owning the advertiser relationship directly. So as we've scaled our sales organization, this has happened naturally where we've moved away from relying on third-party sources of demands had backfill partner like [ad X] or [Gemini] and really owning the advertiser relationships, which drive CPMs higher as well. And then I think just the sort of third opportunity are things that are unique to our platform. So we've called out in past quarters, things like our [MAPS] product, where we do things that are very on brand about Halloween treat map where neighbors can indicate where they're participating in the holiday, giving out candy or holiday [cheer map] where homes are decorated for the holidays. So those are all sponsorship opportunities, there are sources of engagement in the future, there could be transactional opportunities or advertising opportunities where businesses can own a position on a map, boost their presence, indicate a promotion, things like that. So really excited about leaning into that map first experience, and that was part of the motivation of launching our Discover surface that we did last year. But I think collectively, those are the 3 ways where we can really impact ARPU, but first and foremost its really -- it's driving engagement.

So it really -- it sounds like it's about sort of drawn analog to just a magazine or whatever, something analog. It's increasing the real estate against which you can serve as either by increasing the time spent and ad or increasing services as you said, in the app where you can deliver ad inventory. And it sounds like you're in the later innings of that as you've driven engagement higher. But obviously, in the very early innings of then you've got now the demand side now balancing it with the supply side of actually serving up targeted ads -- maybe you can connect the dots a little bit and this is for either of you, a little bit about that, about rolling out the back end, further rollout of the front end and then rolling out the back end. And what that actually ends up achieving from the advertiser perspective, it is better targeting, which then gets bid on just higher CPMs? Just maybe talk about sort of that evolution as you enroll those out.

Yes. I'll grab it for now. So think about the ad platform itself. You've kind of nicely divided into forward-facing and then the back end that really we see, from the front end Nextdoor ad manager is the interface where all advertisers go to create an ad. So whether you're a super small business, like the local dog walker or you're a Publicist, and you want to be self-serve. And that's the key because we obviously have a managed option. We'll continue to have a managed option. But the big thing that changes with Nextdoor Ad Manager is it now fully unifies the front end for self-serve. Of course, the UI will change, right, someone who's less sophisticated. We want them to actually show up and for the ad almost to be precreated, right? We know why neighbors love your business. We know what other businesses like you tend to do. We even might have the photos and so on. So in an ideal world, it's literally 1 click and then you're kind of evergreen on the platform. And a lot of small businesses want to kind of set it and forget it. But we have definitely heard -- I think where we are missing right now is with larger enterprises, they also want to do self-serve in many cases. They have more sophisticated marketing departments. The mid-market in particular, I think we'll do really well here, too, because, again, we don't want to be servicing all of the mid-market with direct seller more white glove. It's much more efficient and better for our margin profile if we can self-serve that too. The second part that they'll get from the ad manager is kind of what -- where you're going to, which is better ability to target. We'll make that more sophisticated for them. And then ultimately, just better insights and metrics. Small businesses today on any platform, frankly, don't get great metrics. They get told impressions, but they're never really told that loop gets closed Nextdoor is a place where I think we could do something much more interesting because you have that connection in real life, right. The plumber who does an ad and then I call them up, and they asked where did you hear about us on Nextdoor. There's a kind of a very natural way to close even if we're not getting the payment would be another way to make that loop close coming from Square. I know that well. On the back end, Nextdoor ad server, that's a big unlock. Like that's the thing I'm salivating for because that's the moment where we get to use all of our first-party data. And the fact that we are as successful as we are, we'll tell you just how good that data is already. And today, we barely really kind of get to use it in any sort of sophisticated way because we're having to do this kind of back and forth between Google Ad Manager and Nextdoor. We don't want to take our data to Google. And Google frankly, is not built to be optimized for a local neighborhood ad network. So once we have [mass serving]. We can advertisers to be able to understand their audiences better. They're going to be able to optimize targeting and delivery. They're going to be able to increase ad relevance. For us, that should actually mean potentially less impressions required to get the same return on ad spend for the advertiser. So that means that we can be more efficient with our impressions and bring more people to the platform just with the same amount of impressions even if we never grew them. And then, of course, you fitted better into the whole system. Like the phrase I say over and over again, is the right ad to the right person at the right time is content which is less true in an entertainment network. And then going back to -- you kind of said it at the beginning, investors do love kind of used teenage like viral and so on. But I love our base. It's very broad. It goes from teenagers all the way up to like Centenarians and it's very kind of evenly split, by the way. We look much more like the U.S. population, which is actually a rectangle, not a triangle, by the way. So there's the population of 50 and above is growing just as fast as the population of 0 to 18 year olds. And we're all [indiscernible] money is, all the money, exactly where silver tsunami is real. And so when we sell to an advertiser, we say, we know it's a real person, so there's no box, and they're at a real address, right? We know where you live because you tell us that to join your neighborhood, you have high intent to buy. You're trying to do things like, should I buy an electric vehicle or should I -- what should I do about wealth management? What are all the neighbors doing? And then finally, we can do this highly localized message but done at scale. Like when advertisers hear local, sometimes they hear like local news and they think it's small. And we're like, no, we are big advertising like the stuff you do nationally, but we get to put a local spin on it. So an ad in my neighborhood will say, "Hey, ex neighborhood, did you know that your neighbors are all moving to Xfinity. That is a very performant ad because it feels personalized.

Right. That's a -- it's a great answer. It's a great segue into that build out of the back end, which I know you are investing quite a bit on this year. And maybe that's actually a great point to ask the question on Nextdoor is also unique and different versus, I think, the peer set and even just the broader Internet space right now and that you are being more managed, I think, with your investments, but you have expressed, look, we're not going to pull back. We're not doing risks. We're not going to stop investing just because of the environment's changed. Maybe either Sarah, Mike, you could talk a little bit about that and what gives you the confidence that you're deploying these dollars in the most efficient way to build that out because given your margin profile the business overnight presumably could be doing 20-plus percent EBITDA margins, but you're investing into things that you think are going to have an impact in the future. And so maybe some just -- some side post or guidepost as to why you think that makes sense and what investors should be looking for and expectations around that.

I can take that one. So I think before I even go in, I want to make sure that it's clear that we are very focused on expenses in the business and where we are placing incremental investments. So we really have made a big push to make sure that discipline exists through all areas of the company. I think that's clear, at least in our last several quarters where there's been basically no OpEx, [include] not OpEx growth or even head count growth. Now your point is correct, though, we are investing in the platform and in the product. And I think it's really important for us to be doing. So we're at an earlier stage in our product evolution than our peers. And really to have the opportunity to -- the right to grab the opportunity in front of us. We have to make these product investments and meet the expectations of not only neighbors on the platform, but advertisers and in particular, advertisers that have been trained by our peers as to what an ad platform should and needs to do. And so there is a price to play and to be effective and to be a competitor for ad dollars and to deliver performance to them. So that's a very important part of the reason why we're investing like we are in the ad platform. Important to understand the scale of our company as well, too. We're 700 employees today. About half of them little more than half are focused on products development. And so that's really where we're investing in incremental dollars. We will actually increase team size this year, but it's very targeted in critical areas like ad tech and in AI, which I know we'll speak about this morning as well. And so we're being very disciplined in where that incremental investment goes, but really feel like it's an important an important step to grabbing the opportunity in front of us. You asked a little bit about sort of what gives us the confidence in being able to do so. And so I think, first and foremost, as I've talked about the proven monetization model. And so we know that there are attractive long-term margins in front of us at scale. And so it's really -- we need to get to that scale. We're not going to cost cut our way into profitability. It's about building the top line and building the audience, our neighbors on the platform, and the base of advertisers. And we have a great signal now that gives us confidence in continuing to invest in things like advertiser retention. So we talked about it in our last call, 90% of our top 50 advertisers. We've been able to retain over the last 12 months. So those that spent 12 months ago are spending in the current 12-month period as well. And that's true across large enterprises, and it's true in our [indiscernible] business. So that's why on retention, that's a really important indicator. The other is just the growth of advertisers. So we're really doing a good job at adding new logos. We had been sort of beholden to a small base of enterprise advertisers in the past. We're now more than 1,000 advertisers across enterprise and mid-market really bringing a good diversity of advertising messages to the platform and importantly, derisking our ad revenue. So reducing concentration and giving us the opportunity to work with advertisers of different sizes across different objectives, whether it's being brand awareness or direct response and really building deep knowledge in verticals that we then can lean on to scale and verticals also including advertising agencies, which is a way for us to drive additional leverage and building our base of advertisers.

When you Mike just -- when you say at scale, people have different definitions of scale just to make sure I understand. When you say at scale, do you mean scale, like there needs to be a higher scale of users against what you serve ads or this is really about scale in terms of getting advertisers and having the platform ready to take on that load of advertisers.

We think we've done a great job of building scale of neighbors on the platform with more than 80 million [indiscernible] neighbors and segment, and more than half of them are weekly active. It's really building -- it's a win in having success in driving the engagement. It gives us more of that impression opportunity to bring to advertisers that will drive top line scale. And really, the top line scale is what then covers the investment that we're making in doing things like building our ad platform to be best-in-class to take advantage of that first-party data that we have. And it's really quite a virtuous loop there of being able to have the technology to drive the advertiser experience that then drives their performance in and unlocks additional spend, whether it's from more advertisers or deeper spend by existing advertisers -- so it is -- there is an important -- there's an important investment to happen to just unlock that, and that comes with scale of the business.

And when you look at -- just to finish up that topic, when you look across the margin profiles, or cash flow profiles of these peers whose sort of this path you're walking anyway and building out your ad platform, is there anything structural or there any reason why Nextdoor wouldn't be able to achieve those margins or potentially even better margins given your gross margins are substantially higher.

Yes. We don't believe that at all. It impact. As you mentioned, our gross margins are better than peers at more than 80%. So we think actually there's an advantage there at the top of the P&L, that is allowing us to invest in product. But over time, having built the ad platform, we believe that the EBITDA margins are attainable as well, the same long-term attractive EBITDA margins. It really is just -- it's top of -- it's the revenue line to drive scale, to deliver those EBITDA margins. And I think an important part of our message has been -- while we are early in our stage of product evolution and product investment, we are focused on improving margins each year. Our guidance for the year was that EBITDA margin will improve year-on-year. It may just be a few points of margin gain, but we think it's an important step on the journey to sustainable profitability, and are committed then to increasing those EBITDA, every year thereafter and believe we have a plan to do that.

Got it. Great. I'll ask one more and then we'll shifting over to...