Coffee Can Next (Part 4): Increasing Nextdoor Bet (2 of 2)
The Price is Right
Following up on my last post on Nextdoor (Ticker: KIND),
I have decided to make Nextdoor a “full-sized” bet in Coffee Can Next.
My average cost basis is $2.12/share.
Coffee Can Next Results So Far (as of 3/4/2024):
Nextdoor is the riskiest of the investments in Coffee Can Next.
I’ve come to the conclusion that no matter how much research I do, I wont be able to pinpoint whether the company can reach its full potential. That’s largely because the company is going through tremendous change right now, and its unclear what the company may look like 5 years from now. I suppose that’s what venture capital is all about…
That said, there are three reasons why I have decided to invest:
It’s Worth A Shot
Nextdoor was founded in 2008, so it’s been around a while. It’s struggled as a public company (the stock is down ~90% since 2021). As a result, I have to imagine insiders are tired. They are frustrated with how things have gone.
So why not sell the company?
It would have been far simpler (in my opinion) to try and sell and “be done with it,” especially with the company’s unique and valuable strategic data assets. But instead, they have chosen to keep going. They clearly believe the company can have a bright future, and are willing to give it another shot.
This caught my attention, and I’ve decided to go along for the ride.
It’s a Defensible Business
I believe Nextdoor has carved out a unique spot in the market for themselves. Millions use their product and I am not aware of a direct competitive offering.
Nextdoor has also figured out the playbook for bringing neighborhoods online, at scale. This has been a long slow slog, and they have been at it for a while. Its hard for me to imagine a competitor wanting to get into the business of bringing new neighborhoods online. It sure seems daunting (and expensive). So barriers to entry are high, and the product has natural network effects built in. This gives Nextdoor a growing competitive advantage in their niche.
Their end markets are also large, and only 40% of revenue currently comes from self-serve capabilities. This has a lot of runway left, and should improve margins as more of this revenue is captured.
The Price is Right
At $240 million enterprise value, we’re paying ~1.1 times trailing 12 month revenue.
At $240 million, we’re paying only $730 per neighborhood. That seems cheap.
At $240 million, we’re paying less than $6 per WAU (weekly active user). In return we are getting ~$1.33 in quarterly ARPU (average revenue per user). That means our payback period is just ~5 quarters. Plus Nextdoor revenue is expected to increase, and the platform has pretty sticky users, ones who are likely to stay on the platform even if they move neighborhoods.
Add to all this that the company is authorized to re-purchase another $173 million in share buy-backs. That’s 70% of its current enterprise value!
Lastly, I see this as a “Heads I win, Tails I don’t lose much” situation.
Heads: If the business blossoms, this can be a home-run investment.
Tails: If it doesn’t, their data assets / local knowledge graph have got to be worth more than current enterprise value, especially to a strategic acquirer.
Ok, so that makes 4 investments in Coffee Can Next:
One more to go, and then we wait.
Interesting pitch, simple and concise