Last quarter, I pointed to Klaviyo absorbing carrier pass-through fees as one of the clearest signals of product strength. In an industry where everyone else passes carrier costs through, Klaviyo was the outlier. I was excited to see a product-led value proposition that removed pass-thru fees. The excitement did not last.

Klaviyo will begin passing higher carrier fees through as contracts renew. CFO Amanda Whalen said higher carrier fees were among the reasons non-GAAP gross margin fell three points YoY to 73.4%. More importantly, she acknowledged that Klaviyo had chosen to fully absorb those increases in prior quarters. 

More than its acquisition of an AI startup (and getting a CPO in the process) and more than the financial robustness and the strength of Composer, that was the biggest surprise. 

Revenue grew 26% to $370.6M, while cost of revenue grew 42.4%. Of the roughly $30.2M increase in cost of revenue, $14.6M came from outbound (text + WhatsApp) communications.

Beyond that, it was another solid quarter. Free cash flow reached $82.9M, and Klaviyo raised full-year revenue guidance to $1.526B–$1.534B.

The Good

The move upmarket continues to work.

Customers generating more than $50K ARR now represent roughly 40% of ARR, while customers above $1M ARR continue to grow faster than the overall customer base. Klaviyo also signed its largest contract ever: an eight-figure, two-year omnichannel agreement.

There is a similarity to what Twilio reported this quarter. Context creates attachment. For Twilio, Voice lands the workload and shared context encourages customers to consolidate communications. 

For Klaviyo, email often lands the customer, and then the shared customer profile makes SMS, WhatsApp, analytics, and AI more useful together. Customers increasingly start with email and then add text, WhatsApp, analytics, and other products around the same customer profile. 

Nearly 20% of Klaviyo ARR now comes from customers using three or more products, and multi-product customers have six percentage points higher gross retention than single-product customers.

SMS dilutes unit economics but improves retention and creates opportunities to sell higher-margin products later. SMS FTW.

International remains strong as well. Revenue outside the Americas grew 35% and represented 36.8% of first-half revenue. International customers increased from roughly 98,000 to 115,000 YoY.

The Interesting

Klaviyo is using its cash reserves (something I’ve commended it for) to buy its way toward AI supremacy.

The company is acquiring the technology and team of Agency, an AI-native customer-success company, for up to roughly $17M in cash. Agency founder Elias Torres will become Klaviyo’s Chief Product Officer.

At Klaviyo’s scale, $17M is small. But if it works, Agency could also become a template for acquiring AI capabilities rather than waiting to build everything internally.

In fact, R&D increased 26.9% YoY to $91.9M, essentially matching revenue growth, while GTM grew only about 10%.

Klaviyo remains deeply attached to the Shopify ecosystem, but Shopify itself is becoming much less important as the door through which new revenue enters. At the end of 2025, 77.9% of Klaviyo ARR came from customers who also used Shopify. Yet only 7.4% of new ARR during 2025 came through the Shopify App Store.

And buried in the 10-Q, Klaviyo disclosed another cybersecurity incident in April involving unauthorized access to source code and system/application credentials, following a similar incident in 2024.

The Unknown

Klaviyo is no longer an SMB-focused company. Andrew’s answer to an analyst’s question was telling. Smaller customers using Composer converted better, but there were no metrics to back up that thesis. Klaviyo continues to disclose enterprise growth, international growth, cross-sell, NRR, and large-customer cohorts without giving us clean SMB revenue growth, churn, or retention. 

The 10-Q adds another wrinkle: Of the $77.5M in YoY incremental Q2 revenue, 58% came  from new customers and 42% came from existing customers. The first-half split was almost identical at 57% and 43%.

That matters because cross-sell may be the strongest it has been since Klaviyo’s IPO, but acquisition is still doing most of the growth work.

Sidebar: Whatever Happened to RCS?

In February, Klaviyo and Google announced a strategic partnership with RCS as one of its flagship experiences. By Q1, Klaviyo said RCS was available to all customers.

The interesting question is how Klaviyo is actually delivering it. Did Klaviyo go directly to Google? Is it using a CPaaS partner? Did it get direct carrier connections? 

Historically, Google has been careful about going around carriers and aggregators. If there is an aggregator underneath Klaviyo, it must have been deeply incentivized to keep quiet. Klaviyo would be too marquee a brand not to broadcast. 

But the bigger question is: Where is the RCS traffic? 

Industry-wide, while no one is talking RCS revenue, at least they’re talking traffic growth. Klaviyo’s silence suggests that, despite the big splash of the partnerships, the volumes may not be there. And that somewhere along the last-mile, RCS’s value proposition in search-to-RCS may be getting lost. 

Finally

Klaviyo had another strong quarter. Enterprise is working. International continues to grow. Cross-sell is finally producing measurable retention benefits, and AI ambitions are well funded.

It is also buying back stock aggressively. Klaviyo spent roughly $333.6M on share repurchases during the first six months of the year while simultaneously increasing investment in AI and product development.

That combination says something about management’s confidence: Invest in the next growth curve while buying the existing one at what it believes is an attractive price.

But $14.6M is still my favorite number.

That is how much incremental quarterly cost came from outbound communications, primarily text and WhatsApp. It explains why a decision that looked strategic last quarter became economically untenable this quarter. Software can abstract away the complexity of telecom; it cannot absorb the bill.