The eCommerce world is buzzing about the news that Klaviyo has confidentially filed for IPO later this year.

1 - Economic signs are mixed at best

Safe to say that the best word for the economy right now is mixed. Inflation is still slightly double the Federal Reserve's target of 2%, but it's down from 6-8%.

Sounds ok right? Not so fast.

None other than Warren Buffett reminded the world that 2023 is going to look rougher than last year: "The majority of our businesses will actually report lower earnings this year than last year"

Employment numbers still look pretty great, historically speaking, and nowhere near what we were looking at during the 2008 timeframe.

Meanwhile, Q1 2023 was a bloodbath of not much M&A, few IPOs, and cautious capital expenditure forecasts.

So, mixed?

2 - eCommerce Valuations Get Another Test

I asked Victor Castro when he thought the last comparable to Klaviyo was; he went to the end of 2021 with Braze to find a comparable. Klaviyo at the end of 2023 will provide a solid test of the eCommerce SaaS IPO market.

Right now, I am seeing even relatively solid SaaS companies being given 2-3x ARR multiples in whisper M&A talks. A far cry from the heady days of 10x ARR being the standard.

If you wonder why Shopify is valuing a "surprise beat" on profitability so much later this year (hence layoffs now), look no further.

There are 3 reasons a public SaaS comparable is important right now.

One, acquirers have no idea how much their previous purchases are worth. M&A in the past few years valuations had gotten overdone. No one knows how much. That Shopify just took a 75% write-down on its Deliverr purchase price gives you some idea what the market thinks right now.

Two, new M&A could use a new baseline. Is it as bad as we think, or are we being too conservative? Right now, smart money says insiders in a 60-day Klaviyo lockup post-IPO may not fare well, but if there is an upside surprise, 2024 could be brighter than we think.

Three, IPOs have to kickstart at some point right? Bad things tend to happen when private markets create all the liquidity in the market. You get fake valuations (all over), and other consequences like tax liability buildup (Stripe).

3 - What will Shopify's Payout Be?

One of the drivers of the Shopify ecosystem is Shopify's investments in the space. Recall in 2022, in addition to lighting $2.1 B on fire with Deliverr, it invested $100 million in Klaviyo at somewhere ~$9 billion valuation - ~1.1% ownership (?).

Klaviyo raised $778 million to date.

While I saw last year that Klaivyo was mentioned to have $140M revenue, a recent IPO WSJ report puts Klaviyo's ARR at $575M.

You don't have to be a math wizard to know that Klaviyo's valuation is going to be challenged. Even at a "previously normal" 10X ARR valuation (well above a lot of this market) that is about half its current valuation.