The SPAC boom of 2021 may have slowed down, but it isn't over just yet. In fact, one of the biggest real estate SPAC deals so far was just announced.
We just learned that neighborhood-focused social networking platform Nextdoor has agreed to go public via merger with a special-purpose acquisition company, or SPAC, known as Khosla Ventures Acquisition Co. II (NASDAQ: KVSB). Here's a rundown of the key details of the deal, what we know (and don't know) about Nextdoor's business, and what investors should expect going forward.
Khosla Ventures is taking Nextdoor public
The deal values Nextdoor at $4.3 billion pro-forma, which includes the cash Nextdoor will receive as part of the agreement.
One of the most appealing parts of a SPAC merger for the target company is that it typically provides a massive injection of growth capital to the business, and this deal is no exception. Upon closing of the deal, Nextdoor is expected to receive $686 million in cash. This includes more than $400 million held by the SPAC, as well as a $270 million PIPE. If you aren't familiar, a PIPE is a separate funding round that happens at the same time as a SPAC merger -- and this one has some pretty big participants, including funds advised by T. Rowe Price and ARK Invest.
What we know about Nextdoor's business
As mentioned, Nextdoor is the leading social networking platform that connects neighbors with other people and businesses that are nearby. The platform is in more than 275,000 neighborhoods, and almost one-third of U.S. households use Nextdoor. The platform has more than 60 million verified users and 27 million weekly active users.
Nextdoor has a visionary and experienced leader in CEO Sarah Friar. If that name sounds familiar, Friar was formerly CFO of Square (NYSE: SQ) and was instrumental in that company's remarkable growth from a niche payment-processing hardware company to a full-featured consumer and business financial ecosystem with a $100 billion market cap. We know that Friar not only plans to continue to lead Nextdoor once it's public, but that she also is personally participating in the PIPE investment round.
The company plans to use the capital it receives as part of the SPAC deal to increase its reach, create new products, improve engagement on its platform, and to better monetize the platform through its ad platform. Speaking of monetization, Nextdoor has a pretty big opportunity. The average daily active user on the platform generates $10 of revenue per year for the company. Meanwhile, fellow social network Twitter's daily active users generate nearly six times as much.
Nextdoor generated $123 million in revenue in 2020, which represented 49% growth over 2019. The company expects 44% and 40% revenue growth in 2021 and 2022, respectively. However, it's worth noting that Nextdoor doesn't anticipate being profitable anytime soon -- it foresees a $103 million net loss in 2022 and a negative 18% adjusted EBITDA margin.
What happens next?
Once the merger is finalized, the combined company will use the Nextdoor name, and its ticker symbol will change to KIND (Nextdoor's mission is to create a kinder world through neighborhoods), at which point the real estate stock will officially be public. Unlike most SPACs, Khosla Ventures Acquisition II didn't issue any warrants, so there are only common shares to worry about.
As far as timetable goes, it's important to note that SPAC mergers have several hurdles to overcome, including approval by the SPAC's shareholders. Assuming all conditions are satisfied, the merger is expected to be finalized in the fourth quarter of 2021.