Klaviyo Earnings and Future: Shopify’s Mid-Market E-mail/SMS Automation Tool
I have 4 key takeaways from Klaviyo's Earnings:
Progress in the Mid-Market
Some of the most impressive statistics on the call are related to mid-market penetration.
There was 80% growth in customers paying them over $50k/year (overall customer count growth is 20%, which is impressive).
Overall, Klaviyo is up to 143k customers.
Pressure on Gross Margins
It was clear from the call that SMS gross margins are less than E-mail gross margins. SMS has penetrated 16% of the base (hello Attentive!). As SMS expands, it makes it harder for them to grow profits dollar for dollar compared to E-mail. In other words, they need Reviews and CDP to work too. And more. You almost have to believe it will all work.
Declining Forecast
Klaviyo grew revenues 48% y/y in 2023 to $700M, but is forecasting a 28% growth rate in 2024, mostly due to not projecting a price increase. Explains why they are adding to “sales capacity” (euphemism for spending more on sales and marketing as a % revenue than before)
Worrying non-GAAP measures.
Other people may not mind, but, since WeWork exploded, I get skeptical. When I read “Klaviyo-Attributed Value” being talked about to Wall Street, I can’t help but hear “Community-Adjusted EBITDA” (WeWork). It’s just a proxy, but essentially a meaningless one we can’t verify.
For example, did you know Klaviyo lost money last year?
You wouldn't if you listened to the earnings call. $36M just in Q4, and $330M for the full year. Now almost all is stock-based-compensation which they might tell you doesn’t matter.
Warren Buffet would tell you to be skeptical, so I trust him more.
It’s nothing personal. Another Shopify proxy entity does the same: Global-E, and other companies like BigCommerce. The bills do come due: pay me now or pay me later.
Non-GAAP operating margin of 12% means that: “ If we didn’t have to pay these pesky employees, we would be rich!”... which…. Still, I like Klaviyo, but at some point you want to see the GAAP dollars.
C’est la vie.
Klaviyo’s Future
Shopify didn’t always care about the mid-market. Even when Plus was introduced in 2014, it was still in the lower mid-market - at best. In the past 5 years, Shopify has smashed through that taking a share of SFCC customers.
Though, if you know anything about Shopify, they don’t have a CRM and Salesforce is one. Of course Salesforce’s "Klaviyo" equivalent is the old ExactTarget which is, well, tired. In the next 2-3 years, Klaviyo will likely build a CRM for Shopify. For two reasons — one Shopify owns 11%, and two, Klaviyo’s exposure to Shopify is ~77% of their customers. Someone will probably need to build a “Service Cloud” too at some point, but likely that task will go to Gorgias, Shopify’s Helpdesk feature.
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