Nextdoor’s SPAC Merger Was a Huge Success, Is It a Good Investment?

Community-based social media app Nextdoor made its highly anticipated market debut on Monday, but should you look to invest quite yet?

Nov. 10, 2021

Alternative social media company Nextdoor (NYSE: KIND) is now valued at roughly $5.6 billion following its merger with a special-purpose acquisition company (SPAC) to go public on Monday. Shares in the company rose by as much as 50% within the first hour of being publicly traded, before settling up 17% at the closing bell. Should investors be looking to buy into the company following this strong opening salvo? Let’s take a closer look.

Nextdoor’s strong start to public life

Debuting on Wall Street through a reverse-merger (another term for a SPAC), Nextdoor was initially valued at $4.3 billion by its merger partner Khosla Ventures. Monday’s heavy volume of trading and the associated rise in stock price sees that valuation now sit at a lofty $5.6 billion. Not bad considering as recently as 2019 the company was only worth $2.2 billion. 

Nextdoor has situated itself as “the neighbourhood network.” Its social media offerings operate according to local regions as opposed to interest groups or specific topics. Users can post announcements or ask questions of their direct community, and the company has been praised for its stringent proof of address requirements which go a long way in developing trust within the app.

When speaking of the merger, founder and managing director of Khosla Ventures Vinod Khosla explained that “Nextdoor is a cutting-edge, category-defining company with tremendous growth potential.” If Monday’s trading is anything to go by, Khosla may very well be correct in his assertions.

What I like about Nextdoor

Nextdoor has intentions of “cultivating a kinder world where everyone has a neighbourhood they rely on.” This ethical stance will be important for the company as we continue to travel further into the era of the ethical investor. Digging deeper, the company places a huge focus on the concept of trust; trust in your neighbor, trust in your community, and trust in the company itself. This ideology is very much a point of pride for the company, and one that shareholders will be hoping will speak to the host of young investors searching for socially just companies to buy into.

Nextdoor also possesses something we here at MyWallSt put a lot of value in: a visionary CEO. Sarah Friar is the former CFO at Square, where she was heralded as bringing the company to new heights. She bucks the trend for most CEOs of social media companies by tackling the issue of targeted newsfeeds head-on. At a recent summit, Friar denounced the “growth at all costs” mentality shown by many social media networks and described Nextdoor’s attempts to combat problems such as hate speech and racial profiling. Strong leadership often bodes well for a company’s profitability. 

Risks to Nextdoor’s business

One of the biggest risks to Nexdoor is one that many companies have fallen to before — the sheer overpowering might of Facebook. Facebook, soon to be called Meta, launched its own community feature called “Neighbourhoods” in May of this year. Nextdoor might have got there first, and certainly has the advantage of having carved out a solid niche for itself, but Facebook’s marketing budget and ability to put next to unrivaled manpower behind a project will make it difficult to compete.

Should I invest in Nextdoor?

Nextdoor represents an extremely interesting opportunity to enter the world of social media on a much smaller scale than typically available. Undoubtedly one of the most ethically responsible social platforms, investors will be hoping that the company can begin to turn its user base of over 60 million people across the world into a higher source of revenue. Investors should follow the company closely, particularly over its next couple of earnings reports, to see just how viable of an investment it could be.

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