While the IPO calendar has been busy this year, there has been a flurry of SPAC mergers as well. On Nov. 8, Nextdoor and DocGo would commence trading as a publicly-traded company after the business combination was approved by the stockholders. Nextdoor is merging with Khosla Ventures Acquisition Co. II (KVSB) and will trade under the ticker symbol “KIND.” What’s the forecast for Nextdoor stock and will it go up after the merger?
KVSB stock surged last week after the business combination was approved by the stockholders. SPAC investors have been getting apprehensive and, in some cases, most of them have opted for redemption during the de-SPAC process.
KVSB and Nextdoor merger details
Most KVSB stockholders have voted in favor of the business combination. Nextdoor would get $674 million in gross proceeds from the transaction—$404 million would come from the SPAC trust account and the remaining $270 million from PIPE (private investment in public equity) investors.
Accounts advised by ARK Invest, T. Rowe Price, Soroban Capital, Baron Capital Group, Dragoneer, and ION Asset Management participated in the PIPE investment. Hedosophia and Tiger Global also invested, so did Khosla Ventures affiliates and Nextdoor CEO Sarah Friar.
Vinod Khosla of Khosla Ventures is the sponsor of KVSB. He's a seasoned Silicon Valley investor and has invested in several tech companies. This is the second SPAC from him. The other one, KVSA is set to merge with Valo Health Inc. The SPAC currently trades near the IPO price of $10 but we can expect some momentum as the merger date nears. Khosla Ventures has over $14 billion of assets under management.
Nextdoor stock forecast
San Francisco-based Nextdoor is a hyperlocal network that connects people with neighbors, public services, and businesses. In its release, Nextdoor said that 275,000 neighborhoods across the world rely on its services. Its coverage in the U.S. is strong and a third of households in the country use Nextdoor.
Nextdoor can increase its reach by 4.5x if its global coverage reaches the levels where it's currently in the U.S. Citing eMarketer data. It said that the TAM (total addressable market) for digital advertising is expected to rise to $607 billion in 2024 from $355 billion in 2020. Of this, $262 billion TAM is expected in the U.S. markets, while the remaining opportunity is in international markets.
The forecast for the digital advertising business and companies like Nextdoor looks positive. Meanwhile, we also need to look at the valuations.
Nextdoor stock valuation
The merger with KVSB valued Nextdoor at an equity value of $4.3 billion. Looking at the current stock price, the pro forma market cap is around $4.7 billion. The company’s revenues are expected to rise 44 percent in 2021 and 40 percent in 2022.
Nextdoor has projected that its revenues would be $249 million in 2022. However, its currently posting losses, like most other startup companies, and expects to post a net loss of $103 million in 2021 and 2022.
The deal valued Nextdoor at a 2022 EV-to-sales multiple of 14.2x. During the presentation, the company highlighted that its valuations are lower than that of Snap. However, Snap’s valuation multiples have since tumbled after the company’s earnings for the third quarter of 2021 missed the estimates by a wide margin.
The business outlook for Nextdoor looks positive. However, to justify the current valuations, the company would need to execute well on the monetization plan. Nextdoor has a strong management team, and the association with Khosla would help it execute the business strategy well. Overall, the stock looks like a good buy considering the increased pace of digitization.