Klaviyo Inc. (KVYO, Financial) is a leading marketing automation platform founded in 2012. The business has achieved tremendous revenue growth (greater than 60% year over year) and has racked up a staggering 130,000 customers. The business has recently gone public via a blockbuster initial public offering. In this analysis, I am going to break down its business model and financials. Let’s dive in.
Understanding Klaviyo's business model
The company's business model focuses around enabling its e-commerce customers to segment their users using first-party data. After which, a business can send automated emails, text messages and even push notifications to the right cohort, at the right time.
Its focus on first-party data (email/phone number capture) comes at a crucial time. This is because major players such as Apple (AAPL, Financial) have implemented privacy tracking discontinuity for its apps. In addition, Alphabet's (GOOG, Financial) Google plans to phase out the third-party cookies in 2024, which is expected to rock the tracking market.
Klaviyo also combines user profile data with event data, which enables real-time notifications to be sent, for example when a user clicks “add to cart” on an product. This is possible because the product combines a cloud data storage layer with an application layer.
Its base customer data platform enables all of a customer's data to be brought together, which makes it ideal for reporting and predictive analytics, including machine learning. This helps with the creation of customer lifetime value models. In addition, the business enables its customers to track competitor performance for specific industries.
In addition, the business has over 300 integrations available, such as Shopify, WooCommerce and Salesforce Commerce. Across its entire customer base of 6.9 billion profiles, Klaviyo has processed over 695 billion events. This means the company has a huge amount of data, which it then anonymizes to refine predictive models.
Pricing model
Klaviyo uses a tier-based subscription plan based on the number of active consumer profiles stored on its platform. This is a brilliant pricing model, as it effectively grows with a company.
Its pricing also expands as its customers decide to leverage model channels. For example, many will start with automated emails before moving onto SMS. This model looked to have been successful so far as its net revenue retention rate rose to 119% by the end of June 2023. This means customers are sticking with the platform and spending more.
A fairly unique part of its platform is “Klaviyo Reviews,” which enables its customers to collect reviews for its products as well as messages and data. Its go-to-market strategy has focused on being “product led.” This is an efficient growth mechanism as it means many new customers sign up based on word of mouth and partnerships with agencies. The business also has partnerships with major e-commerce platforms, which definitely helps with user acquisition.
To track progress, the company has created a unique north star metric called Klaviyo attributed value, or KAV. This includes the amount of revenue customers generate through the platform after a message is sent via the platform. This enables the company to capture the true value it is delivering to users. For example, for its customers who joined during 2022, 90% had created KAV by March 2023. In general, its median time to generating KAV is less than 30 days.
Financial growth
Klaviyo reported revenue of $473 million as of 2022. This was an increase of 62.5% year over year, driven by strong customer growth to 130,000. Its customers with over $50,000 in annualized recurring revenue rose to 1,458 as of end of June 2023.
For the six months ending June 30, its revenue rose by 54% year over year to $320 million, according to its S1 filing.
Its operating expenses were $239 million over the same period, up from $176 million in the prior year. This meant its operating loss of $25 million in the six months ending in June 30, 2022 turned into a profit of $7.9 million. This is a positive sign as Wall Street is looking for businesses that can be profitable in the current environment.
Another positive is the vast majority of its revenue (52%) has been invested into sales abd narketing, with $123.9 million invested as of the end of the first six months of the year. The business has a strong balance sheet with $439.8 million in cash, cash equivalents and restricted cash in addition to liabilities of $147 million.
Valuation and market competition
Klaviyo trades with a price-sales ratio of 17. This is higher than marketing automation platform HubSpot (HUBS, Financial), which has a price-sales ratio of 12.
These platforms are quite different, and Klaviyo is growing at a faster rate. However, HubSpot is in a much more dominant position from a market share perspective. It should also be noted that Klaviyo faces competition from other email automation services such as Mailchimp, which was acquired by Intuit (INTU, Financial) for $12 billion in 2021. However, that platform is not as advanced with regard to the included customer data platform. For perspective, Klaviyo trades at an $8 billion valuation at the time of writing. Mailchimp did have higher revenue at around $800 million, relative to Klaviyo’s $452 million.
Conclusion
Klaviyo is an interesting company that is poised to benefit from the depreciation of third-party tracking sources. Its email automation combined with a CDP is a fairly unique value prop, as its competitors seem to only offer one type. However, initially, many customers may be happy with just the single mail automation solution. Either way, with the growing e-commerce data and user targeting being vital, Klaviyo has carved out a solid position in the market.
