A year ago, I predicted that “Mark Zuckerberg may finally get the comeuppance that so many have been wishing on him for so long.” At that time, the company he founded (formerly known as Facebook), Meta Platforms (NSDQ: META), was trading near its all-time share price above $380.

Now the company is valued at less than half that amount, bottoming out below $155 two weeks ago after releasing its fiscal 2022 Q2 results. During the quarter, Meta recorded $2.46 of diluted earnings per share compared to $3.61 the previous year.

On that score, I was correct. Meta is taking the pounding I expected while Zuckerberg continues to defend his quixotic foray into the “metaverse.” Meanwhile, a host of other social media sites are fighting for the market share that he is leaving behind.

In that same article, I postulated that a relative newcomer to the social media space, Nextdoor Holdings (NSDQ: KIND), might be a worthy successor to Facebook. As I noted then, “Unlike Facebook, where the emphasis is on connecting with people you already know, Nextdoor wants you to get to know your neighbors.”

Apparently, not everyone is as interested in getting to know their neighbors as I am. During the past year, Nextdoor grew its base of weekly active users (WAU) by 26% to 36.9 million. That isn’t much compared to Facebook’s 2 billion daily active users.

Also, the increase in Nextdoor’s users did not translate into better financial performance. During the second quarter of this year, the company reported a net loss of $37 million compared to a $21 million loss the year prior.

Slamming the Door

That was not the news Wall Street wanted to hear and KIND fell 20% that day. Since it started trading near $13 last November, KIND dropped below $3 last week.

That big of a price drop begs the question: Is Nextdoor still going to be around a year from now, and if so, is now a good time to buy the stock?

The company ended Q2 with $666 million of cash. It notes that “Cash used in operations for the six months ended June 30, 2022 was $28M (million) compared to $26M in the year-ago period.”

If that metric accurately reflects the company’s burn rate going forward, then it should be at no risk of going under any time soon. In fact, its Board of Directors recently approved a $100 million share repurchase program.

That may not sound like a lot of money, but KIND has a market cap of only $1.1 billion. If the share repurchase plan is fully implemented, the company’s share count could shrink by 9%. That will go a long way towards improving its per-share operating metrics.

However, Nextdoor will have to do a lot more than reduce its share count to convince Wall Street it is headed in the right direction. During the past year it has spent a lot of money on advertising and personnel. Now, those investments need to start paying off.

If it can do that, KIND could quickly reverse direction.

Doubling Down

I bought shares of KIND in my own account last year. Now, I’m wondering if I should double down to recoup my investment.

If I believe the company is going to survive, then buying a call option may be the better way to go. Last week while KIND was trading at $2.84, the call option that expires in January 2024 at the $3.00 strike price could be bought for $1.10.

For that trade to be profitable, KIND must rise above $4.10 within the next 17 months. But if KIND never gets back above $3, that call option would expire with no value.

In this case, I think buying the option makes more sense for me than buying more stock. If KIND does go out of business then both the stock and the option will become worthless.

In that case, I’d only be out $1.10 per share instead of $2.84. But if KIND sticks around and starts posting better results, then both the stock and option should appreciate.

The big difference is the rate of return on my investment. Let’s say KIND gets back up to $6 by the option’s expiration date.

In that case, buying the stock would result in a gain of 111% compared to a return of 273% on the call option. That means I would have to risk less than half as much money to recoup my original investment.

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