Nextdoor Holdings, Inc. Q3 FY2023 Earnings Call

Good afternoon. My name is Jordan, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to Nextdoor’s Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. You may now begin your conference.

Thank you, Jordan. I’m John T. Williams, Head of Investor Relations. Good afternoon and thank you for joining us to review Nextdoor’s third quarter 2023 financial results. With us on the call today are Sarah Friar, Chief Executive Officer; Mike Doyle, Chief Financial Officer; and Matt Anderson, Head of Finance and Strategy. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC’s website and in the Investor Relations section of our website, as well as the risks and other important factors discussed in today’s earnings release. Additionally, non-GAAP financial measures will be discussed on today’s conference call. A reconciliation of these measures to their most directly comparable GAAP financial measures can be found in the Q3 2023 Shareholder Letter released today. With that, I’d like to turn the call over to Sarah.

Thank you, John T. We’re thrilled to have you on the team. Q3 was another quarter of progress for Nextdoor as we delivered year-over-year growth in revenue, verified neighbors, weekly active users, and session depth. New neighbors are finding value on the platform, and those coming to Nextdoor are engaging more. In Q3, we added more new organic verified neighbors than in any quarter in our history, bringing our quarter-end count to approximately 85 million neighbors globally. WAU increased by 2.1 million, or 6% year-over-year, to 40.4 million globally and is up nearly 50% over the last three years. While we saw a slight sequential decline in Q3, we have seen a rebound quarter-to-date. On engagement, we’re pleased to note that we’ve seen strong momentum of session depth increasing approximately 30% year-over-year. But despite our strong progress driving new neighbors to the platform and increasing depth of engagement, it’s impossible to ignore the macro challenges that continue to weigh on the budgets and advertising verticals that are important for Nextdoor. Earlier today, we announced a significant cost reduction plan that includes a reduction in our workforce by approximately 25%. This reduction in force was a tough decision to make, but a needed change in how we operate. Let me share some context. Three years ago when we listed on the NYSE, we were generating differentiated revenue growth of over 50% quarter-after-quarter, well ahead of industry peers. In order to keep up with this growth, we scaled our team. Starting in Q2 of 2022 and continuing into this year, we began to face increasingly challenging macroeconomic headwinds driving reduced advertiser budgets. This has particularly impacted advertisers with high levels of home-related spending, one of the key advertiser categories on Nextdoor. We fought hard to maintain our employee base with the belief that the macro environment would begin to recover by the end of this year. We decided to bridge the downturn by using our strong balance sheet, but the recovery we expected hasn’t yet materialized. So we must adapt our investments to better align with market realities and focus our work on our highest priorities, including ensuring that we continue to invest in areas such as our new ad tech stack. What does this mean for our business? First and foremost, it accelerates our path to free cash flow breakeven by the end of 2025. It rightsizes the business and aligns our workforce and other expenses with our near-term revenue expectations. It maintains our very strong balance sheet and allows us to continue to deploy capital thoughtfully and with a long-term lens. Now, let’s shift gears and discuss the key drivers of Nextdoor’s revenue growth and profitability. First, we continued scaling new channels to grow our base of verified neighbors. This was a Q3 highlight as the number of new neighbors coming to the platform organically accelerated 32% quarter-over-quarter. This was driven in large part by our digital invite strategy. We also made significant efforts to verify previously unverified neighbors and deliver more personalized and hence better-performing email-based neighbor invitations. Second, we are delivering more relevant local content to neighbors. Neighbors are finding value and engaging more as they visit Nextdoor, which drives sustained growth in ad impressions. As I mentioned earlier, session depth, the number of ad impression opportunities during each user session, grew approximately 30% year-over-year, an acceleration driven entirely by increases in consumption of user-generated content, not ad loads. We are using AI at Nextdoor today and in a very real way to improve our local knowledge graph and personalize relevant local content, whether it’s seeing how neighbors engage with invitations, notifications, or how often they may comment or react. AI helps us increase the relevance and timeliness of content and drive increased engagement during each session. We’re also using AI to drive content creation. Our Post Assistant suggests post contents that foster positivity and community engagement. Whether it’s helping neighbors find a service or helping business owners promote their services, the Post Assistant has a roughly 70% suggestion-acceptance rate. Third, we are delivering advertiser value and reducing advertiser efforts. The Nextdoor Ad Server is transformative for the company. It’s the foundation for delivering advertiser performance and for increasing ARPU growth through improved revenue yields. In Q3, we delivered in two key areas: first, we delivered more sophisticated pacing methods to better deliver ads over the course of the day and the course of the campaign; second, we built the core components required for performance optimization, so that we can begin experimenting with this capability later in Q4. In Q3, we saw immediate favorable results. Starting in July, 100% of ads from U.S. SMB advertisers were served via our Nextdoor Ad Server, which drove accelerated SMB customer and revenue growth. Our work in Q3 also prepares us to serve substantially all Nextdoor Ads Manager demand on the Nextdoor Ad Server by the end of Q4. Given a subset of midmarket advertisers are already using the Nextdoor Ads Manager, this effectively serves as the first phase of our migration of midmarket customers. In Q3, we also encountered some challenges and are adapting and improving. From a neighbor perspective, our efforts to improve the long-term user experience through an evolved notification strategy had a negative near-term effect on WAU. While the short-term impact of these changes certainly weighed on Q3 WAU, the changes represent a deliberate step that we believe will reduce negativity, improve the timeliness, proximity, and relevance of notifications, and ultimately sustain our high levels of long-term user retention. From an advertiser perspective, compared to improving momentum through Q2 and strength in July, we saw uneven demand trends in August and September. Weaker growth among U.S. enterprise advertisers, particularly those with higher exposure to home-related spending, offset much of the momentum we saw among international and SMB customers. We believe these enterprise demand trends will likely persist for at least the coming quarters. This more muted near-term growth trajectory reflects neither our desired progress nor the strength of the long-term drivers of our business. And with that in mind, our focus is squarely on performance through 2024. Performance for neighbors seeking relevant and timely local content and connection, performance for advertisers seeking unique brand activations with the community or local orientation to those seeking reach and ROI, and performance for shareholders seeking a clear path to free cash flow generation. To get there, we aim to number one, add more verified neighbors in 2024 than we did in 2023; two, deliver improved formats, targeting, and tools for advertisers and improved yield on our ad inventory with sustained benefits coming from the introduction of video ads and lead generation campaigns on Nextdoor Ad Server and the migration of ad delivery for Nextdoor Ads Manager campaigns to Nextdoor Ad Server; and three, accelerate the path to quarterly free cash flow breakeven by the end of 2025. Before turning over to Mike, I want to acknowledge his significant contributions to Nextdoor over the five-plus years as our CFO. In that time, Mike has led multiple rounds of funding, including our public offering on the NYSE, and built an excellent finance function. While he will be stepping down as CFO effective today, we are grateful that he is staying on through December 1st to assist with the transition. Mike will always be a neighbor, and I am enormously grateful for his partnership and the contributions in making Nextdoor what it is today. We also have a deep and talented bench. I’m very happy to introduce Matt Anderson as Nextdoor’s next CFO. As many of you know, Matt has served as our Head of Finance and Strategy since he joined in 2019. He has made numerous contributions over that time, including leading our Investor Relations function. I also had the privilege of working closely with Matt during his nearly six years in the finance organization when I was CFO at Block. I know that he is a terrific finance leader and has the experience to be a great CFO. Earlier in October, we welcomed Dana Evan to Nextdoor’s Board of Directors. Her expertise and proven leadership in finance, operations, and strategy are bringing valuable perspective to the Nextdoor Board and to the role as Chair of the Audit and Risk Committee. Her strong track record as a public company CFO will be enormously valuable, and I’m thrilled to have Dana on our Board and Matt on our leadership team. So with that, I’ll turn it over to Mike.

Thank you, Sarah, for those kind words. It’s been my privilege to be a member of the Nextdoor team since 2018, and I am tremendously proud of what we’ve accomplished. Our business is financially strong, and Nextdoor remains well positioned for the opportunities ahead. I’ve worked closely with Matt since hiring him over four years ago. I have immense respect for Matt as a leader, and I’m confident he’ll be excellent as Nextdoor’s CFO. Matt has a deep understanding of the finance function and has demonstrated the ability to align the company to reach our long-term strategic goals. Before I discuss our results, note that I’ve signed our Q3 10-Q, which was filed earlier today and, as Sarah mentioned, I will be staying to support the team to ensure a smooth transition. Turning back to the business, Q3 revenue of $56 million grew 4% year-over-year despite uneven demand trends that emerged and weighed on revenue as the quarter progressed. We saw several areas of revenue growth in Q3. Small and medium-sized businesses, or SMBs, performed well, an encouraging early indicator that our transition of these customers to the Nextdoor Ad Server is yielding results. And international revenue grew by 79% year-over-year, a sequential acceleration reflecting sustained new logo growth and broader awareness of Nextdoor’s audience and ad platform. Enterprise advertiser demand was mixed in Q3, and while we are encouraged to see solid enterprise and mid-market account growth, average spend per advertiser declined during the period. Regarding specific verticals, we saw resilience in technology and telecom, retail, and healthcare, though home services spend has slowed, and we’ve not yet seen a meaningful rebound in financial services and real estate, which are key for Nextdoor. Q3 ARPU of $1.39 declined 2% year-over-year. Sustained ad impression growth was offset by a year-over-year decline in CPMs for our U.S. news feed as direct-sold advertisers who monetize at a relatively higher rate made up a smaller share of the total ad impressions delivered. Q3 adjusted EBITDA loss was $20 million, representing a negative 35% margin. Non-GAAP operating expense growth of 6% year-over-year outpaced revenue growth and drove margins lower versus the year-ago period. The main drivers of expense growth were hiring within select R&D and sales teams, offset in part by more efficient neighbor acquisition spend. Our Q3 operating cash burn of $12 million was again better than the adjusted EBITDA loss, reflecting another quarter of benefit from interest income. We ended the quarter with $540 million in cash, cash equivalents, and marketable securities and no debt. As always, we will continue to evaluate our capital allocation opportunities and judiciously manage our cash position. With that, I’ll turn it over to Matt.

Thanks, Mike. I really appreciate the kind words from both you and Sarah. It’s been a pleasure to partner and to learn from you over the last four-plus years. And I want to say thank you for all you’ve done for Nextdoor. I’m incredibly excited about the opportunity to step into this role. Now, let’s get into the financial outlook and the cost reduction plan that we announced earlier today. As Sarah noted, our focus is squarely on performance in the year ahead. We are targeting a reduction in current GAAP personnel expenses of up to $60 million annually. These actions, while difficult, increase our focus on efficiency and will accelerate the path to quarterly free cash flow breakeven by the end of 2025. As Sarah said earlier, the Q4 revenue growth acceleration we initially expected has not materialized to date. We now expect Q4 2023 revenue in a range between $50 million and $52 million and 2023 revenue in a range between $213 million and $215 million, which implies flat to slightly higher year-over-year growth for the full year. We expect a Q4 adjusted EBITDA loss in a range between $21 million and $19 million, which excludes the impact of one-time expenses related to our cost reduction plan. This implies a 2023 adjusted EBITDA loss in a range between $81 million and $79 million. One other note, we currently estimate that those one-time severance and related costs associated with our cost reduction plan will be approximately $12 million. Across many measures, Nextdoor's growth and momentum continue. Even in an environment where important advertiser verticals have been pressured, organic verified neighbor growth and engagement depth are accelerating. We are making continued progress transitioning to our proprietary ad platform and saw positive early results in Q3. And as we look ahead to 2024, we remain focused on growing WAU and revenue. Thank you for joining our earnings call today. With that, I'll turn it over to the operator for Q&A.

Thank you. Our first question comes from Mark Mahaney of Evercore. Mark, please go ahead.

Hey, thanks. Two questions, please. First, on the negative content, Sarah, has there been a change in that? I know that's always been the challenge for the company, but is there something that's made the generation, amplification, or whatever of negative content greater in the recent past? And then secondly, at a high level when you talked about going to market with advertisers, leaving aside the verticals that are cyclically soft, what's the biggest pushback you get from advertisers in terms of their unwillingness to aggressively commit to Nextdoor as an advertising platform? Thank you.

All right. Thank you, Mark. So let me start on WAU, and then in particular how we're thinking about getting the right content to the right neighbor at the right time. You saw with our WAU of 40.4 million, which grew 6% year-over-year, but clearly was down 3% sequentially. This was due to efforts that we put in place to improve the long-term user experience; specifically evolving our notification strategy. There is a cadre of neighbors who come organically to the platform, but often neighbors come because of a notification that we've sent them. In Q3, we reduced notifications to certain user segments and also reduced certain high-engagement notifications, particularly crime and safety, to better align platform perception and content, and to reduce what you call negative content. When we use an algorithm around notifications, crime and safety is clearly an area people tend to click on. But over time, we do get concerned about the perception that that drives of the platform. So we took a very deliberate step in Q3 to make a change which will reduce negativity, improve the timeliness, proximity, and relevance of notifications, and to make sure we sustain our high levels of long-term user retention. We actually do have a very high degree of retention over a two-year time frame — whether it's verified neighbor to WAU, it's around 50% — but even over a two-year period, we haven't seen changes and we think we can do better. As we look forward, why will WAU grow again? Well, number one is the outcome we saw in verified neighbors. The fact that we saw almost over 30% sequential lift in new neighbors joining the platform — clearly they take a little time to become weeklies, but we see them already engaging at slightly higher levels than other channels. On your second question about go-to-market with advertisers, what's the biggest pushback to get them to more consistently commit budgets? Overall, if you look at advertiser retention, we are maintaining our advertiser base. The good news is advertisers are not leaving Nextdoor; they're continuing to spend. However, what we do see is that they are spending less right now, particularly in the verticals where we have most exposure: financial services and home services. In Q3, we actually added the highest number of new logos. So we are seeing new advertisers come to the platform as they hear about us; we've been working hard on brand awareness and putting out more case studies about how advertisers have seen positive outcomes. As we build out our ad tech stack, we expect to be better for a broader group of advertisers, particularly those in self-serve. Today, you can self-serve across the Nextdoor platform, and advertisers that care deeply about performance are benefiting. With our proprietary Ad Server, we can do a lot more. Net-net, as we look out, we see a lot of reasons to be excited about traction: pent-up demand from advertisers who may come back when budgets release, new advertisers getting to know us, and our ability to keep adding net new advertisers each period. It certainly has been a tough quarter in Q3 and as we look into Q4, but we see room for optimism into 2024, ideally with a bit of tailwind in ad spending.

Thank you, Sarah.

Our next question comes from Eric Sheridan of Goldman Sachs. Eric, please go ahead.

Thanks so much for taking the questions. First, Mike thanks for everything. I've enjoyed all the insights over the years, and Matt, congrats on the new role and wishing you success in it. Sarah, if I could just follow up on Mark's question on advertising. I think what we're trying to discern from the call is you clearly have a lot of momentum in SMB and mid-sized advertisers around the Ads Manager. Is there a way to better discern what that momentum is in terms of a backdrop or tailwind for growth exiting 2023 and/or thinking about what the headwind to revenue growth is from either category underspend versus more normalized trends so we can better understand sort of the recovery rate to think about in 2024? Thank you.

Yes. Clearly we're not happy with our overall revenue performance right now, but we do see a lot of room for optimism. Maybe I split our ad base into three areas: larger enterprises, mid-market clients, and SMB. I'll start on the SMB side because that was a real highlight in the quarter. SMB revenue grew about 23% year-over-year. That's particularly important because this is the group that is on our proprietary stack today. They moved onto what we call the Nextdoor Ad Server on the back end; they can also self-serve on the front end through Nextdoor Ads Manager if they choose. So they are the group that can take the most advantage today of what we're able to do once you're on our platform, which is optimize and better target. On the mid-market side, advertisers are coming. We added more new logos in mid-market than we've done in any other period. However, they are still shifting more toward what we would call managed, because our tech platform still needs to add many of the features they expect when they're managed on Nextdoor. We want to get them into more of a self-serve motion. On the enterprise side, the headwind has really been advertiser budgets. When I look at verticals that did well in the quarter, we've continued to do well in areas like healthcare, government, professional services; verticals like tech, telco, and retail stayed fairly stable. But a number of larger advertisers in home services and financial services retracted their budgets. When we talk to them, it's often not a company-specific issue; they are pulling budgets back across the board. Their intention is to come back when they have more budget, but for now they are constrained, and that has ramifications for us given our scale.

Eric, I'll add one more thing in addition to what Sarah highlighted. As we think about the ad stack, one of our core focuses is advertiser performance. Last quarter we talked about moving SMB customers to our Nextdoor Ad Server; that's an area of significant momentum. When we look at indicators of momentum into future periods, things like budget utilization rate as an indicator of advertiser value and how that shows up in terms of revenue retention for that set of customers, we see some really positive signs. That is an area where we continue to see momentum. We continue to have conviction, and we're balancing that against some of the vertical dynamics Sarah noted.

Thank you.

Thanks Eric.

Our next question comes from Brian Fitzgerald of Wells Fargo. Brian, please go ahead.

Thanks, and again congrats, Matt and Mike. Thank you for all the help we've had over the years. We really appreciate it. Two quick ones from us: when you think about campaigns like the one with Verizon that you ran this quarter, how effective are those in attracting new neighbors to the platform? Do you see equal benefits across neighborhoods at different levels of penetration? And then second, can you give us an update on the progress with business-to-business initiatives like Weather.com or Axios or BBC? And how's that impacting content generation and consumption?

Yes. Let me lift it up a level because it's really a question about how we grow new neighbors on the platform. If you look at our top-of-funnel efforts, which became a big focus for us in Q3 because we said in order to grow WAU, we need to go back up to the top of funnel, we feel very good about our ratios such as verified neighbor (VN) to WAU, about 50%, and WAU to DAU, also about 50%. So the real growth is going to come from bringing new neighbors in at the top of funnel. We grow that in four ways: invite, brand awareness, content sharing (which is the partnership piece you asked about), as well as SEO and our own content that gets shared on other social channels, and then finally paid. In this period, well over 90% of our verified neighbors are coming unpaid or organically. We invested most in invites in the quarter, reinvigorating our digital invite strategy where we match someone's location with an email address or phone number and invite them to Nextdoor. We use generative AI to create enticing invitations, and that's where we saw the large acceleration — 32% growth quarter-over-quarter. Because of our digital invite strategy, as people join, they are more inclined to invite others; we've invested in our Neighbor Hub and are seeing almost a million visits per week, contributing to about 100% year-over-year growth in digital neighbor-to-neighbor invites. Brand awareness can include campaigns with partners like Verizon; these can be win-win. They are paid advertisers who want to do something unique locally, like neighborhood meetups or neighbor months, and these campaigns build brand awareness and can be effective in attracting new neighbors. The content partnerships are another lever. When our content is surfaced on other platforms, such as Bing, that can bring people back into Nextdoor as returning WAUs or net new neighbors. Partnerships like Weather.com, Axios, BBC allow us to surface hyperlocal, timely information — weather alerts, for example — which is valuable in emergencies. We continue to build our developer API and recently soft-launched our developer API website so others can integrate and be part of this growth strategy. We're still early, but it is a meaningful lever for growth.

Awesome. I appreciate it. Sarah thanks so much.

Thank you, Brian. Our next question comes from Youssef Squali of Truist. Youssef, your line is now open. Please go ahead.

Thank you. This is Robert Zeller on for Youssef. A few questions. On the organic user growth, I'm just curious where that occurred as you expand internationally. And on the Q4 revenue guide, what were some of the things that you expected to play out that didn't materialize? And then, on the session depth reaching all-time highs, I'm curious what drove this — I think last quarter you talked about expanding the vicinity of neighbors that content reaches. And I think you also previously called out notifications as a driver of increasing engagement and user growth. So I'm curious with the new strategy around notifications if that might impact engagement or user growth at all. Thanks.

Sure. Great questions. On organic user growth, both international and the U.S. grew in the quarter year-over-year. The big push on digital invites has had more impact in the U.S. right now, which is useful because the U.S. is more mature in monetization. Partnerships have also been more active in the U.S., aside from partners like the BBC. International remains a focus for 2024 as a long-term growth strategy; countries like the U.K., Western Europe, and Canada are important. On the revenue side, international was a highlight, growing 79% year-over-year, which indicates the opportunity if we continue to add users and drive WAU there. I'll hand it over to Matt to talk about Q4 guidance and what did and didn't materialize. I can finish on session depth.

Yes. I'll touch on that and close on session depth dynamics. With regards to the Q4 revenue guide, it really is a couple of components. The first is the vertical dynamics. We started to see continued slowdowns in areas we've highlighted, like financial services, and at the same time areas like home services started to see more pressure relative to prior expectations. While we see continued momentum in a number of verticals — things like healthcare and retail — that wasn't enough to offset near-term pressures on our enterprise direct-sold demand. Those dynamics affect CPMs in the period. These supply and demand dynamics meant that a greater share of our ad impression inventory, which is still growing significantly, was ultimately met by slightly lower CPM dynamics. This is on top of broader industry-wide CPM pressures that many peers have highlighted. At the end of the day, we continue to see high levels of advertiser retention, which gives us confidence: as new logos continue to ramp on the platform, there is a solid foundation for future growth, but that growth will be over a slightly longer time horizon than we previously indicated. Regarding session depth, you referenced session frequency and our notification strategy. Session depth is about the dynamics when a neighbor comes and engages on the platform. The 30% growth Sarah mentioned is substantial, and it's a continuation of dynamics we saw in Q2 and something we expect to continue in Q4. This is a function of more relevant, more personalized content. Areas like AI are important for understanding how neighbors engage with notifications and different types of content, and we have a richer picture of how to make time in the app better. That's a core part of our session depth dynamics and an area where we continue to have conviction.

Okay. Great. Thank you both.

Our next question comes from Brian Nowak of Morgan Stanley. Brian, your line is open. Please go ahead.

Hi, this is Chole on for Brian. Thank you so much for taking our question. First, could you please speak a bit more to the changes and updates you're making in the Nextdoor Ads Manager? It sounds like there's a lot of positive traction momentum there, particularly for SMB advertisers. As you think into next year, what areas are on the roadmap to drive revenue and contribute to results? And second, on generative AI, could you give a little more color on how you're thinking about expanding the ways AI can improve both the user experience and the advertiser experience on the platform, beyond current tools and offerings? Thank you.

Great. Thanks, Chole. On the ad tech stack — front-end and back-end — Nextdoor Ads Manager is the interface where people create an ad, and our work there is all about reducing advertiser effort. Today, advertisers of any size can now self-serve on NAM. We continue to build out features for larger advertisers and agency partners, including user roles and permissions, creative duplication, pixel tooling, audience exclusions, ad credit tooling, and multi-edit functionality in NAM. The list is long and very specific to ads, but we are making progress period-over-period to improve the experience for businesses of all sizes. On the back end, the Nextdoor Ad Server now delivers 100% of all U.S. SMB demand. We're seeing faster loading times and better distribution of ad impressions, driving better retention of SMB customers and better revenue — up 23% year-over-year in the quarter. We want to use more ML and AI to ensure the right ad content gets in front of the right user, which drives engagement. Beyond our ad platform, we continue to build first- and third-party integrations. On the first-party side for measurement, the majority of our CPA-focused customers have adopted our own pixel. Scripts is an example of a customer using our pixel to better understand neighbor activity and optimize for lower CPAs, increasing spending meaningfully year-over-year. On the third-party side, we have measurement integrations with companies like Neustar, Oracle, Lucid, Foursquare, and others. On brand safety, we are live with Moat for verified impressions and are integrating IAS. Importantly, when advertisers start from a point of verified neighbors, we can verify the impression — it's a real person that we know where they live locally. On generative AI and AI more broadly: AI is already integral to the product experience, whether improving notifications or using generative AI applications. Our Post Assistant helps create posts that perform better on the platform, with about a 70% acceptance rate. We've increased active machine learning models in the product about 10x since 2022, and the number of successful model experiments has increased by approximately 100x. We're prioritizing velocity and breadth of models across markets and user needs. Looking forward, I'm most excited about leveraging AI not just within the ad server to help advertisers understand audiences and optimize targeting, but to help small businesses with page creation and campaign creation. Ideally, we could automatically create campaigns for small businesses based on what we know about them and local trends — giving them near-real-time, high-performing campaigns. We've also seen almost 300,000 pages created using Gen AI for SEO, helping drive people back to Nextdoor while keeping our proprietary data secure within Nextdoor.

Thank you. We have no further questions in the line-up. I'd like to turn the call back to Sarah Friar for any closing thoughts.

Great. Thank you so much, operator. Thank you all for dialing in today. We always appreciate your support and your interest in Nextdoor. When I look at what the quarter brought positively, we felt good seeing year-over-year growth across our key metrics: WAU up 6%, revenue up 4%, and, in a tough environment, seeing a record number of new verified neighbors come to Nextdoor. We feel like we have a lot of levers at all stages of our user funnel to keep driving growth. Whether it's top of funnel, where we added our highest number ever of organic users to the platform; mid-funnel, where we continue to see folks engage and VN-to-WAU ratios remain in the 50% range; or bottom-of-funnel, where session depth is up 30% year-over-year. We saw strength in areas such as international ad agency partnerships and with the push from Neighborhood Faves, we now have $4.3 million claimed business pages, a fertile ground for upselling advertising. We do expect verticals like financial services, real estate, and home services to recover over time; we know we perform well for them, and we view that as pent-up demand, though we are not seeing it now. AI is really important for Nextdoor. We own the local knowledge graph with labeled data and a high-intent audience of real people and neighborhoods. It's a unique asset. As we look forward, we are laser-focused on growing WAU and revenue. That means continuing to deliver value for neighbors and organizations, highlighting the importance of local. Second, we need to keep investing in platform initiatives to keep growing engagement — that's where AI plays a role. And third, we need to keep iterating on monetization capabilities for advertisers of all sizes by building out the Nextdoor Ads platform to deliver better outcomes and reduce advertiser effort. Right now, we're very focused on near-term performance, but we will continue to invest in long-term opportunities for this unique global hyper-local neighborhood network. For 2024, we will work to add more verified neighbors than we did in 2023, and with our expense reduction plan accelerate margin improvement and cash flow generation. Thank you so much. I will also be on a follow-up analyst call to go a little deeper, and I appreciate your time this afternoon.

This concludes today's call. Thank you for joining. You may now disconnect your lines.