Scaling Klaviyo at $11B

🧠 The Takeaways

Today, we’re buying a stake in Klaviyo as it continues to scale well in the public markets.

1. They’re hitting all the notes investors want to see.

2. Becoming the Shopify Marketing Cloud isn’t a surprise.

3. Continue moving on up. To the Enterprise.

+ What I wish I knew earlier: The 5% Rule

Let’s Community - How the 5% Rule changed my career

A couple of months back, I went on Dan and Sam’s podcast, and they asked me a great question:

“What do you want other people to know that you wouldn’t find in a book?”

My answer was easy: the 5% rule.

Every week, block 5% (2 hours) to explore the intersection of what you do + where you want to do. Find 2 hours to:

• Read

• Listen to a podcast

• Watch YouTube  

• Experiment with something new

Most people get trapped in the day-to-day:

• Hitting numbers

• Completing tasks

• Fighting fires

But the real gains come from mastering the skills between what you’re currently working on and what you want to be. That 5% compounds over time.

How I do it:

• Calendar block 2 hours every week

• Deep dive into new skills that spark curiosity

• Focus on topics at the edge of my current role

I'm running a PE firm today, because 5-10 years ago I spent a couple of hours every week learning about how they worked, looking for deals, studying the model, and surrounding myself with people who worked in PE or adjacent roles.

What are you going to learn with your 5% this week?

Let’s Examine This Biz

Note: As always, none of what follows is legal, tax, investing, financial, or any other sort of advice. I am not an investor in Klaviyo. And I was never here.

Klaviyo (The go-to email Marketing platform for Shopify brands) is printing money + hitting the notes that public investors want to see. 

They’re trying to become the full Marketing suite and have been the jelly to Shopify’s PB for the last decade. As both continue to grow, Klaviyo continues to hit similar growth numbers to the mothership.

• Stock Price: $42.85

• Market Cap: $11.2B

• Stock Performance (L5): +25% (since Sep 2023 IPO)

Financial Summary

TLDR Analysis: Still burning but making the right moves.

• Rev growing faster than COGS. Gross Margins expanding @ 75%+ 🤤

• M&S + G&A returned to Pre-IPO levels. 👍

• Still a Net Loss for the year, but wayyyyy down (-85%) 👍

Klaviyo’s playing the growth >>> profits game, and while I’d like to see them at least break even, investors are rewarding them with +44% stock growth in the last year.

They have a lot of growth left out in front of them, so as long as they can take a play out of Shopify’s playbook and get profitable, investors reward them handsomely for it.

Let’s Analyze This Biz!

Here are the 3 major takeaways you need from Klaviyo’s 2024 earnings.

1) They are hitting the notes public investors want to see

As customers, you’re not happy about the price increases / changes Klaviyo’s making, but it’s exactly what investors want to see.

• $50k+ customers (+46% YoY) growing faster than overall base (+17%)

• Rev’s growing faster (+34%) than COGS (+24), leading to more Gross Profits.

• Free cash flow margin’s hitting 16%

They still aren’t profitable (crazy to me @ ~$1B in topline), but they’re 1 good year away from hitting the rule of 40. Only expect these changes to continue as Klaviyo moves upmarket in pursuit of larger profits.

Takeaway: Investors want to see bigger customers, higher contract values, and more profits.

2) They’re Becoming the Shopify Marketing Cloud

Klaviyo wants to be Salesforce for the Shopify market.

Adding in service (free for now), is a massive data play. No one wants to pay for Service (aka Support). It’s a brutal industry to be in, but they aren’t doing this because they want to eat Gorgias and Zendesk’s lunch (ironically both logos are integrations in the slide above).

They want to get into Service to keep all the data in house to power the marketing side of the biz. It’ll take them years to master it, but as they build more AI into their product, they’ll want to capture more and more customer data.

And nowhere has more customer data than CS.

I’m not sure they realize how much work (and relatively unprofitable) the Support Go-To-Market is, but it’s a brilliant strategy when trying to migrate 11-figure brands from Salesforce who want to manage 1 vendor.

Takeaway: Every SaaS will step on each other’s toes in the AI race to get max data.

3) They’re going to abandon the SMB market

This is the “Dark Knight feeling” completely played out. 

At ~$1B in Rev, Klaviyo still isn’t profitable. And as a public company, they need to do 2 things if they want to increase their value:

1. Continue to grow

2. Get profitable. Then Increase profitablity.

For B2B SaaS bizs, it’s almost always the same playbook:

• Build more features.

• Continue to move upmarket. 

• Capture larger accounts that pay you more for more features.

Shopify’s executing this flawlessly, but Klaviyo’s now built too many products that eat into different budgets.

Maybe they can nail the mythical SMB all-in-one app, but more realistically, this is the app for whales that don’t want to install 10 different tools when they migrate from SFCC.

Takeaway: Klaviyo will continue to move upmarket + hike prices accordingly.

Final Thought

Klaviyo continues to be the proof that you can build a massive biz in the Shop ecosystem.

And there’s still a ton of growth for them as they continue to be the barnacle on Shopify’s back.

As Shopify swallows the entire eCom industry, Klaviyo will ride along as their #2. 

But Klaviyo’s real long-term bet? 

Detaching their future biz from Shopify and becoming the #2 for another industry that Shopify doesn’t capture. It’ll be interesting to see where they go.