Q3 2024 Earnings Summary
- Klaviyo is experiencing strong international growth, with EMEA revenue growing 45% year-over-year, and is expanding its global footprint by adding local language support and local sales representatives, which is expected to drive further growth internationally.
- Klaviyo is successfully moving upmarket, landing larger customers who are adopting multiple products from the start, such as enterprise customers like The Body Shop and Lulus. This shift provides opportunities for further expansion within these larger accounts, including across business units and geographies.
- Klaviyo is expanding its product offerings beyond email and SMS to include products like Reviews and Customer Data Platform (CDP), which are seeing positive adoption. This expansion into a multi-product platform positions the company for future growth and allows it to address more of its customers' needs.
- Declining Net Revenue Retention Rate (NRR): Klaviyo's NRR has been declining and is expected to continue declining in the near term due to limited expansion opportunities. Customers, especially in the SMB segment, are focused on ROI and cautious with software spending, leading to intentional messaging and less expansion of existing products. Additionally, as Klaviyo moves upmarket, larger customers are landing with multiple products from the start, leaving less opportunity for future expansion, which negatively impacts NRR and could hinder revenue growth into next year.
- Softness in the SMB Segment: Klaviyo is experiencing persistent softness in new customer acquisition and expansion within the SMB segment due to ongoing macroeconomic pressures. Customers are in a value-based market, being very mindful of their spend, which may limit growth opportunities for Klaviyo in this significant customer base.
- Moderated Growth in SMS Channel: While the SMS channel shows healthy growth, customers are being intentional about the number of messages sent per subscriber, resulting in a moderated pace of SMS sending. This cautious approach during a key seasonal period like Black Friday and Cyber Monday, where SMS is typically strong, may limit revenue growth in this important channel for Klaviyo.
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Declining NRR Impact
Q: Why is NRR declining and affecting future growth?
A: Amanda explained that Net Revenue Retention (NRR) is expected to continue declining due to softer expansion among existing products, particularly in the SMB segment where customers are cautious with spending. While gross retention remains strong, customers are value-focused, and as Klaviyo moves upmarket, larger customers are landing with multiple products from the start, leaving less room for expansion. Cross-sell efforts with products like SMS, CDP, and Reviews are progressing well, but the decline in expansion impacts NRR. -
Next $1B ARR Vision
Q: How will you achieve the next $1B in ARR?
A: Andrew stated that Klaviyo aims to reach the next $1B in ARR faster by focusing on four areas: acquiring more SMBs, international expansion, moving into mid-market and enterprise, and growing the product portfolio. The company invests in best-in-class products, expanding into messaging channels beyond email, like SMS, mobile, and social platforms. They're exploring M&A opportunities but remain committed to being the source of truth for customer data and powering experiences that drive revenue. -
Upmarket Traction and Competition
Q: How is upmarket movement affecting competition and growth?
A: Andrew noted that as Klaviyo moves into the mid-market and enterprise segments, they compete with products lacking a robust database foundation. Their ability to cover all channels—email, text messaging, mobile—is a competitive advantage. Customers are adopting more of Klaviyo's product set upfront, which strengthens their position but leaves less room for expansion. There's opportunity to expand within enterprises across business units and geographies. -
Macroeconomic Impact
Q: Is the macro environment affecting your business?
A: Amanda mentioned that the macro environment remains consistent, with some softness in new customer acquisition and expansion, particularly among SMBs. Customers are value-focused, scrutinizing their software spend. However, Klaviyo is pleased with strong results as they are considered a must-have for driving customer revenue and growth. Strength was seen in both entrepreneurs and the high end of the market this quarter. -
International Expansion Progress
Q: How is international expansion progressing?
A: Amanda expressed excitement about international progress, highlighting 45% revenue growth in EMEA. New language support—including German, Portuguese, Korean, Spanish, and Italian—has been well received. There's notable strength in new business across France, Germany, Spain, and Finland. Klaviyo is adding local language-speaking sales reps and leveraging a strong partner network to support growth outside the U.S.. -
Q4 Margin Outlook
Q: Why will operating margins compress in Q4?
A: Amanda explained that operating margin guidance includes a catch-up accrual for a new cash bonus program, impacting margins. Excluding this, the margin outlook aligns with typical seasonality. Q4 usually sees gross margin pressure due to increased sending volumes and higher marketing expenses as Klaviyo invests more to support customers during the critical holiday season. -
Q4 Seasonality and SMS Volumes
Q: What are expectations for Q4 customer adds and SMS volumes?
A: Amanda stated that Q4 is historically strong for customer additions, especially among lower-end market customers preparing for the holiday season. As Klaviyo moves upmarket, they may add fewer but higher-quality customers. SMS volumes are expected to be seasonally strong due to the holiday period, with brands using SMS for time-sensitive marketing during Black Friday and Cyber Monday. -
Growth in Reviews and CDP Products
Q: How are Reviews and CDP products performing?
A: Andrew discussed that Klaviyo is transitioning to a multi-product company. For SMS, 80% of the top 50 customers are using it, indicating strong demand. The CDP product addresses analytics and data governance, allowing customers to turn insights into marketing actions easily. The CDP product pays for itself quickly and is expected to be a significant growth driver. -
Impact of Shopify's Enterprise Expansion
Q: Is Shopify's enterprise success affecting Klaviyo?
A: Andrew confirmed that as Shopify expands into the enterprise level, Klaviyo benefits. The partnership allows both companies to go to market together effectively. The tight integration between commerce and marketing platforms provides customers with seamless data flow and enhances customer experiences. -
New CTO and CPO Hires
Q: How will new CTO and CPO impact technology?
A: Andrew expressed excitement about the new hires, Surabhi and Adil, who bring humility and experience at scale. Adil was previously a Klaviyo customer and understands the space well. Both have experience building scalable, reliable, and secure systems, which will help Klaviyo as it becomes the system of record for consumer data. -
Connecting to Ad Audiences
Q: How is Klaviyo helping connect to ad audiences?
A: Andrew explained that Klaviyo integrates tightly with ad platforms like Google, Meta, TikTok, and Pinterest . Klaviyo aids in customer acquisition by capturing data and building relationships with website visitors, reducing the need for retargeting. It also allows businesses to pass curated customer lists back to ad platforms to improve targeting. -
Customer Acquisition Channels Update
Q: Update on customer acquisition channels?
A: Andrew outlined that Klaviyo uses inbound marketing, a freemium model, partners like digital agencies and Shopify, and a sales-driven approach for mid-market and enterprise acquisition. Strength is seen across all channels, with growth in the entrepreneur segment driven by Shopify and digital marketing efforts. The sales team and larger partners are driving demand in the mid-market and enterprise segments. -
Macro Assumptions into 2025
Q: Are you being conservative about macro assumptions?
A: Amanda agreed that they are assuming the current macro environment will continue into 2025. Since the trend has been consistent all year, they believe it's prudent to expect similar conditions next year. If the macro environment changes, they may see a shift, but they're maintaining stable assumptions. -
Upmarket Pipeline Seasonality
Q: Will upmarket strength come in Q4?
A: Andrew mentioned that enterprise customers typically don't make buying decisions in Q4 due to the holiday season. While some might switch before holidays, most wait until after. Therefore, the company focuses on building relationships and pipeline in Q4, expecting conversions post-holiday.
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