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Klaviyo reported $222 million in revenue with a 35% year-over-year growth rate and SaaS-like 77% gross margins. At this rate, it is possible that the company may exit the year at a $1 billion annual revenue run rate. I’ve written extensively about how Klaviyo, who, much like Braze, represents a new breed of vertically focused, omnichannel messaging platform. Should any of them go public, Attentive, Postscript, or Podium too would receive the same in-depth analysis. For now, let’s focus on what Klaviyo’s Q2 earnings tell us.
Disclaimer: This is not stock advice. Everything about the messaging business interests me, including asset pricing. Use your judgment to invest your money.
Companies mentioned in this post: Klaviyo, Braze, Attentive, Postscript, Podium, Samsonite, Arsenal Sports, Le Petit Ballon, Herschel Supply Company, Olive & June, Taylor Swift, Toast, BazaarVoice, TikTok, Pinterest, Sinch, Shopify Plus, Twilio
Topics discussed in this post: revenue growth, SaaS metrics, omnichannel messaging platforms, international business expansion, SMS marketing, enterprise customer growth, SMB market dynamics, AI in marketing, customer data platforms (CDP), strategic partnerships, investment risks, market segmentation
The Good
In Q2, Klaviyo name-dropped logos like a Masterclass celebrity faculty roster, boasting clients like Samsonite, Arsenal Sports, Le Petit Ballon, Herschel Supply Company, and Olive & June. You’d half expect it to announce Taylor Swift as a client.
The company also displayed broad international appeal, with international business growing by 41%, driven by strong performance in France (65%) and EMEA (45%). SMS was a key driver of this growth. The company also reported a 64% increase in enterprise customers—defined as those with over $50,000 in annual recurring revenue. This growth helped balance some challenges in the SMB segment, which I will explore later.
Klaviyo has continued to invest in its sales force and develop its in-product compliance tools. New tools include a bulk profile suppression tool to prevent reaching out to disengaged accounts, reputation repair AI, and an SMS Smart Opt-in feature.
Financially, Klaviyo’s non-GAAP gross margin also improved, thanks to efficiencies that helped absorb increased SMS costs.
The Interesting
The company continues its focus on becoming the CDP for the enterprise with inbound (Toast, BazaarVoice) and outbound (TikTok, Pinterest) integrations. The focus is also clear in the way it sees AI as a tool for productivity, optimization, and the creation of marketing strategies. What’s more interesting is that they’re using SMS as the gateway to “omnichannel orchestration” to win enterprise business.
Unlike Sinch, Klaviyo observes softness in the SMB market. Not so much in the drop in demand but in the longer sales cycles. It views the SMB as two buckets: one, the entrepreneurs where the demand remains strong, and the other, the “mid-market,” where the time to close a deal is getting longer.
The Unknown
Klaviyo declined to share how many of the 50,000 new customers were Shopify Plus merchants. Anytime a business responds to revenue distribution questions with a deflection, it’s safe to guess that much of it comes from the very source being questioned. Twilio faced similar inquiries in its early post-IPO years when asked about the revenue spread between text and voice, often responding with a “We don’t share that” deflection.
The question is valid, and so is the deflection. The power of a good partnership can be a competitive secret sauce and, precisely for that reason, the risk to the business should such a partnership not endure needs to be clear to investors.
Speaking of Twilio, given that it touted its co-selling relationship with Klaviyo, one has to wonder how much of Klaviyo’s upside is contributing to Twilio’s upside?
Finally
Gut instinct may say that narrowing use cases reduces the addressable customer base. In fact, the contrary is true. If you narrow the scope of the problem you’re trying to solve, you’ll notice that the problem is much bigger than you initially thought. And that, if you solve it well—i.e., build a solid product, propelled by a dynamic GTM engine, and led by a competent leadership team—you could find yourself riding on a growth rocket ship. You too could be Taylor Swift.