Klaviyo, Inc. (KVYO) Earnings Call Transcript & Summary

Thanks for joining us for our next session. Really happy to have AB and Amanda here. Before we kick off, I think that's your first time at our conference here. So maybe start a little bit like ground us on Klaviyo, and then I'll kick it off from here.

Awesome. Yes. So for folks that don't know Klaviyo, we provide a now autonomous or you can say agentic AI, a self-driving consumer CRM. So our customers are 183,000-plus businesses around the world that are nominally consumer-focused. You think of businesses that have lots and lots of end customers themselves, end consumers, where they need to deliver stunning customer experiences across marketing, service, their website, mobile apps that's highly tailored and personalized to every single consumer to drive incremental engagement and monetization. But they need to do that all through software. There are no account managers or sales reps or anybody that's going to help solve their customer experience problems. So you can think of us as that CRM really serving the underserved market of consumer businesses. And we do that for businesses big and small, so everybody that's just starting out to small businesses to some of the world's leading iconic brands, brands like Mattel, Unilever and their portfolio of brands, Reebok, and yes, in the last couple of months, we went from -- a lot of us folks know us for marketing. Really, the secret sauce of Klaviyo is the underlying data platform. We think of this like scalable brain for a business towards everything you know about your customers. And now through some of the machine learning and now some of the modern AI techniques of LLMs, we're able to create a logic layer on top that allows our marketing to self-optimize. In the last couple of months, we've released some new products around that, our marketing agent we can get at. And then also on the customer service side, we recently released a set of 3 products there. So now you can think about Klaviyo as covering for any business, the entire spectrum of the customer experience. And then, yes, 180,000 customers. I don't know, Amanda, you want to cover the kind of financial rundown?

Yes, 180,000 customers plus. We are north of $1 billion in run rate, growing north of 30% per year this year and doing it while delivering consistently ever since we went public above the Rule of 40.

And you've been one of the few companies that has been showing revenue growth over 30%, like all these times. So like congratulations, by the way, like that's kind of an amazing feature.

Yes. When we look out there at the public software universe, we see fewer than 10 companies who are over $1 billion in revenue run rate, growing north of 30% and doing it while delivering Rule of 40.

Yes. No, that's amazing. Yes, exactly. The 2 topical questions. One is we just had Black Friday, Cyber Monday. How has that played out for you and any trends you've seen there?

Yes. So we work with consumer businesses around the world, a lot of -- certainly a lot of retail and e-commerce. And obviously, Black Friday, Cyber Monday, Thanksgiving weekend is a big one, start of the holiday season. So this year was an awesome year. I'll give you like 2 trends, first, some results and then a couple of trends that we noticed. We help businesses generate -- send over 22 billion messages, process over 10 billion data points on their consumers. They can now add to these like very rich consumer profiles that they have. And then critically, with our software, you can actually measure the revenue impact. And over the 5-day weekend from Thanksgiving through Monday, our businesses generated over $3.8 billion in sales directly tied back to the marketing they were doing through Klaviyo. So that's why all of our customers think of us very much as a revenue engine, that $3.8 billion, by the way, that represented 42% of all of the revenue that those businesses generate over the weekend -- over that holiday weekend. So not only are we generating revenue, but we're generating almost half of the revenue that these businesses rely on in the busiest time of the year. And then trends-wise, I'll say 2 things. The first is, this is the first real year you saw kind of AI applied out in the wild. So 2 things. With our marketing agent release, that's an autonomy layer on top of our marketing platform that you can think of like we'll design marketing campaigns, marketing strategy for you. We saw a lot more adoption from our customers. We recently launched in September of folks who are now generating marketing campaigns entirely through AI, right, either through prompts they're -- or literally our system saying, hey, here's what we think the best strategy for you is, at this critical time here. Customers can then review that, send that. That's generating now millions of dollars in incremental KAV on top of that. So it's very early, like the adoption is still -- the adoption rates are very low for the customers that have leaned into that. We're already seeing them using AI to define their marketing strategy. And then on the customer service side, we launched our customer agent platform, which allowed businesses to basically create their digital representative that can be on their website or connect to text messaging or WhatsApp or e-mail, other messaging channels. And we saw great engagement from that. Just to give you an example, we have customers now swimwear brands of ours actually down in Sydney, down in Australia. They're using our customer agent not just to do kind of product research, like explain what swimwear they offer, but they've actually given it a personality and set of skills where that agent can actually help people plan -- almost plan a vacation. So they'll get questions from their customers like, hey, I'm going on a trip for 10 days. And one, I'm wondering like what suits to get that fit my budget. But also, if I'm going on a 10-day vacation, how many swim suits should I buy? What would you recommend? And even they're even now thinking about things like, hey, as part of that, hey, if we know where you're going, that agent can be value-add and say, hey, here's some of the things we would suggest, by the way, we know that you're going to the beaches, you're on the Gold Coast, hey, here's some beaches that you should go stop at. So our customer agent will see a lot. We saw obviously it's our first holiday with that, but these agents are really becoming a core part of the shopping experience, not just in ChatGPT, but like literally on people's sites. And then we talked about the 42% loyalty, that 42% just keeps ticking up year-on-year. This importance of digital relationships to businesses, knowing who their customers are, being able to action that data through AI and seeing that generate results. We're seeing increasingly businesses when it comes to holidays going back to customers that either have pre-existing relationships with from the previous years or customers that maybe aren't customers yet, but somehow they built a relationship with them over the course of the year. They're going back to those customers to convert and make their holiday numbers versus, say, advertising to get new demands.

Yes, yes, yes. Okay. Perfect. That's really exciting. And if you think about it, like how do I -- how do you productize that? Does that come like as part of the offering? Do I have to buy a different SKU? Like how do you deliver that?

Yes, sure. So look, we -- just the moment really is now when it comes to the CRM, the customer experience space, becoming more autonomous. And what we mean autonomy in 2 ways, right? The first is the delivery of the experience. Like we -- obviously, we serve consumer businesses. There are no sales reps. There are no account managers in a reach out field. The delivery has to be through software. And now autonomy is also coming to the design side of that, defining what is the marketing actually be doing, how should my customer agent behave. Increasingly, we have AI that's actually doing that as well. We're monetizing this in 2 ways. On the customer agent side, on the customer service side, this is all a usage-based or even an outcome-based product. So quick example, every time a consumer has a conversation, with an end consumer that the consumer says like, yes, I just solve my problem, we monetize that. There's a small fee for that. And on top of that, we're finding our customers will say, hey, if that conversation results in a transaction, I'll even pay you a commission on the sales that are generated. So that's how we think about monetization there. We're almost like a surrogate like sales function for these businesses that don't have a sales team. And then our marketing agent, we found that while we're not -- we're so far have bundled most of that functionality, some of that functionality bundled into our core marketing platform. The other part, we have in a marketing analytics and autonomy SKU, where it does advanced personalization, you maybe think things like product recommendations, knowing what the right -- what's the best channel for each customer. We use that in 2 ways. Our customers -- one, it helps them personalize marketing campaigns down to the person that drives incremental lift. And so there's an additional tier if they want that capability. And then secondarily, that product will also identify other marketing opportunities. So we talked about like building this marketing calendar. We have a set of algorithms and agents that will literally go through some of these data, both inside of Klaviyo and outside of it to help them find pockets of either customers or maybe it's inventory that's new and they need to clear and we'll generate marketing campaigns off of that, things that their team could do, but now that just happens autonomously.

I mean -- so I don't know if you thought about it when you started the company, but like having the data and now the AI to go with the data, actually, your value proposition must kind of go on steroids now then in theory.

Yes. I think there's -- I get a lot of questions of like, hey, how do you think about your software, your tech your infrastructure in the age of AI. And I think the key thing for us is like you need to think about every software product is like, hey, how much of it is true infrastructure where there's something behind the scenes that really makes it magical versus it's like, hey, it's just a really shiny UI layer, right? And for us, we started Klaviyo as a database, data infrastructure company. So we are excellent at storing these kind of -- these billions of consumer events in real time, indexing them and then serving them so either the end application, so say, a chat application or a marketing automation layer. But now increasingly, LLMs can interpret and have access to that data and can use it as sort of additional context, right, when they're generating content. We've built the data infrastructure. We then built the message infrastructure and now it's like real-time chat and conversational infrastructure. That's really the magic of what we've done. And so with AI, we look at that and like it is really useful in 2 ways. One is it gives us kind of like thinking and logic engine. So now instead of having to rely on our users, are they having to do all the work to figure out how to program it and configure it. We can actually just use LLMs to do that. That's what we're doing with our marketing agent, customer agent. The second thing is like LLMs is this kind of like mapping or interpretation layer. We're finding that it's making it easier. So rather than having to use our interfaces, right, to say, design a marketing campaign, instead, you could actually just through natural language, describe the kind of marketing campaign that you want. And then whether it's through Klaviyo's interfaces or say, it's your internal chats, right, Slack or Teams or some other LLM or really any text-based system, you now can just send that prompt to us and we can convert it, right, into fully fledged marketing. So I think this is really -- for us, it's like it's actually almost an easier way to get at the infrastructure that underlies Klaviyo. At the end of the day, if that results in better customer engagement, right, happier consumers, then that's ultimately, like that's what our businesses want, right? And that's what we can monetize.

Yes. And Amanda, like to get you a little bit involved here as well. How do you think customers -- what's customers' propensity to pay for some of that? Like because the big debate in the industry is that's really nice, but it's table stakes. I expect that for no money because we're going to AI, off you go.

Yes. The propensity is quite high. And we know that, and we have great confidence in that because of what we've seen already in the business. So we launched our marketing analytics product last February. And what marketing analytics does is basically advanced analytics, some of which are AI-driven and AI-driven personalization that makes a consumer or a business' relationships with its consumers that much more valuable because they have better insights into who those consumers are and they're better able to directly target that. So we have a customer of ours, for instance, who is in the apparel space, and they implemented marketing analytics earlier this year. Their revenue year-on-year that they're generating through Klaviyo, that KAV that Andrew spoke about, is up close to 40% year-on-year. And so what we've seen, and that's coming not just from the analytics piece of it, but they're also using some of the earlier stage AI personalization like AI gender-based prediction that helps them sort their customers without needing to ask questions into who are those who are going to be interested in buying women's clothing versus who are those who are going to be interested in buying men's clothing. And so what we've seen through that is that where customers are seeing increased value, where they're seeing that we can use AI in this last mile personalization to make those relationships more value and generate more revenue per customer for their consumers, they're definitely able to -- and willing to pay for that. So we're incredibly bullish on the ability to continue to increase monetization of that as we launch even more and better.

Yes. And then moving on a little bit from the AI theme because we are -- half of our time we spent now on that. Talk a little bit about the channels as well, like that we think about like historically with e-mail, but now it's kind of broader, like how do you think the channels will evolve, especially then -- and I don't know how AI even plays into that. I don't know if it does.

Sure. Yes, I talked about like the importance of Klaviyo, maybe 2 things here. The first is the importance of what we talk about messaging infrastructure that we have and like we think this channel excellence. When it comes to like consumers and how they communicate with businesses, right, whether it's like a business communicating to the consumer or vice versa, our basic strategy is like we're going to play the field. Wherever consumers are, we want to match up to that. So that's actually the reason we started with e-mails. We asked a lot of business, hey, what do your consumers prefer to say, e-mail is the thing. A couple of years ago, we branched that out into text messaging, right? And text messaging actually the standards there, having increased, right, some of the flexibility, some of the [ brich ] media you can do. And just recently, like probably last year, we added mobile app functionality. So you think of like, hey, if you have a mobile app, you want to communicate with somebody either through a push notification or some in-app experience, you do that. And just a few months ago, we added WhatsApp as a channel, and now we're branching more into social. We actually just acquired a company that will help integrate with Instagram. And so now that folks that are maybe chatting with the business or direct messaging with the business over Instagram can now like also -- they can also do that through Klaviyo. So we generally -- we look at it as like, look, there's probably half a dozen channels, which are very popular and like some of these are region dependent globally. But across all those channels, we, one, are excellent at the media that's supported and the communication kind of norms on those channels. We're great at working with the providers there. So with e-mail, we do a lot around deliverability, maybe deliverability in messaging is a little bit similar to fraud and payments, like you just have to be good at it in order to support those channels. And then also, we're very good at like stitching them all together. So one of the things our customers typically ask us and say, hey, I know you guys support 5 or 6 channels, but like can you tell me which ones my consumers prefer? Can you help me message them on the channels that they each individually want? And that's something that obviously like, yes, we have all this data, right, across our ecosystem and then for individual brands. The last thing I'll say is like as it relates to channels is there are obviously channels which we have historically focused on channels that provide a direct line of communication to a business. So somewhere where it's like, hey, you get somebody's e-mail address, phone number, it could be on WhatsApp, et cetera. Increasingly, we're finding businesses -- we're expanding our marketing capabilities to handle channels that maybe sit outside of that, they're not owned and operated, right, or they have full control over. So let's take like what's happened with consumer LLMs, ChatGPT, et cetera. We integrate with those LLMs so that things like when there's now commerce happening outside, right, of a business' website, those transactions flow back into Klaviyo . So when somebody, for instance, like if somebody transact on a website, all of that metadata about that consumer comes into our data platform and we index it for real-time usage. The same exact thing happens when somebody buys now on ChatGPT. And we find -- I mean we've actually integrated into all of these platforms such that all of that data flows through to us and then that business has the ability to then use that on all of the channels we support.

Yes. And I think one more thing on channels is that what we see and hear from customers is that they want to communicate consistently across all of these channels. And so they don't like point solutions because point solutions create an inconsistent customer experience. They want to use that same -- you mentioned earlier, the power of our data platform. They want to use that same data, everything that they know about a consumer and use it to power it, whether it is e-mail or SMS or any of the other channels. And so by unifying on Klaviyo, they get a better customer experience. They spend less time stitching information together across systems and more time personalizing that interaction, which drives their revenue.

And the -- so that's a question for Amanda now. The like number question. So if you think about it, like how do we have to think about the impacts for you on the money side, like in terms of you pay for e-mail, but then if you do SMS, you pay more. If you do like some other stuff, you pay more. Like how does this kind of translate into numbers for you?

Sure. If you take e-mail as a starter and generally, our customers have to start with e-mail because our e-mail product is unified with our data. So you buy data -- or sorry, e-mail sends plus profiles and the profile is where all of this information that you know about your consumer lives. Then you add on SMS, you can also add on marketing analytics or our analytics products, which include marketing analytics and our advanced data platform. And then now with the launch of service, you can also expand into service, right? So that it's not just unification across your proactive marketing channels, but it's also unifying your reactive inbound service channels as well. When you total up across all of those, it can be in the neighborhood of triple the revenue that you generate from just that e-mail subscription alone. So the power for our business is quite high in terms of the incremental revenue that we can generate and the potential size of these customer relationships as we expand across, not just marketing channels, but also importantly, analytics and service as well. And that doesn't even begin to include some of the uplift that we just talked about from AI.

Yes, exactly, yes. So you're not that worried about growth. And like, I mean, you still have to deliver, but like it's not an opportunity or problem, yes.

We are very bullish on our growth.

On the last one on growth and talk a little bit about international, like because like that's the other thing that is probably a vector here.

Yes. International is -- just has fantastic growth. So international has accelerated its growth for 6 quarters in a row now. The rate of growth internationally has actually been increasing. And our EMEA region grew 48% last quarter. And what's driving that is that we're making the product in the whole customer experience more and more accessible to companies around the globe. So what we've seen is this need and this demand for personalizing the customer experience is universal. That is not limited to merchants and to brands in the U.S. Brands around the world want to be able to offer personalized interactions at scale. And so as we've made it easier for them to do so, the demand has -- and the latent demand and the interest that we're seeing is just incredibly high. The ways that we've made that easier are, one, launching new languages. So when we went public a few years ago, we were only in English and only in U.S. dollars, and we were in a handful of markets for SMS. Today, we are in 11 languages, and we're in 22 markets for SMS. And so as we've made it easier for customers to buy in their native language and to use the product, that's just really accelerated demand. And then what drives that going forward is we're continuing to innovate. So we're launching new locally relevant channels like WhatsApp. And then importantly, we are customizing the whole journey, not just having product, but also local language marketing, local language partner networks of the folks who are really relevant in each of those geographies local language sellers. And as you add on each of those in a given market, the effect is compounding and drives that growth.

And where are we on international as a percent of revenue now, like just to give us an idea about perspective, give us some specific.

Roughly 1/3 of our revenue right now is from international, and that has been steadily increasing over the past years just as we've continued to grow.

Yes, yes. Okay. Perfect. Makes sense. And then see, I found another vector of growth. What about going -- like one of the things that we've noticed is like you're going slightly higher up in the market as well. Like can you speak to that in terms of, is that just product got mature, you got more scalable? Is it more effort that you finally put in there? Like how should we have to think about that? And where are we on that journey?

Yes. So it's interesting. My co-founder and I came from true enterprise software before we started Klaviyo. And we decided that it's like, hey, we're going to build this really scalable platform, data platform and then now marketing and service on top of it. we really aimed our go-to-market towards SMBs. That was intentional in the early days because you said, hey, we think we can just -- we can grow more efficiently there and we thought was a very underserved market. What we found over the years is that an increasing number of enterprise businesses are saying like, hey, Klaviyo seems to be like the right tech stack. That's the right concept. It comes with this like data platform built in, right, or I can buy that's deeply integrated with marketing service. And that for us is the killer differentiator as we move up into the enterprise. A lot of folks say like I don't want to try to stitch together a data warehouse or data lake and get us to talk to these applications and do it in real time and then try to figure out how we can do attribution, reinforcement learning. I want all of that to work tightly together. So you can see as we report out on our number of customers above $50,000 in ARR, $50,000 ACVs. And that number just keeps continues to increase. And it's actually something we've really pressed on this year. We've made a lot of good progress, is deliberately going after more enterprise businesses. And I'll go back to this thing of like the moment is kind of now, I think, for this customer experience and CRM category in terms of, hey, it's getting more autonomous. Like these systems are starting to like self-reinforce, figure out how to define experiences on their on that are self-optimizing. And that's -- obviously, the scale of enterprise means that there's a lot more utility there. Our point of view now is if you talked to us when we went public a couple of years ago, we said, yes, we're working on like this kind of mid-market segment. We'll get to the enterprise. We're now -- my opinion is in the next 2 years, every single enterprise is going to reevaluate and make decisions about what the future of their customer experience and CRM stack is. And since we're focused on these consumer businesses where like automation and autonomy is the thing, we feel really good about what we're doing with AI and then just the strength of our platform writ large, we're going after these enterprise businesses now and seen a lot of success.

Yes. Is that -- let me weave in a question there that I had -- wanted to ask earlier, actually, you just kind of had an announcement around the co-CEO situation or like not situation, but like co-CEO structure. Like can you speak to that? And does that fit into kind of actually that kind of slightly moving upmarket as well?

Yes. I mean, it's definitely a benefit. So yes, on -- gosh, Wednesday. Yesterday morning, time flies. Yes, we announced that one of our Board members who I've been working with for the past few months and really developed this like the killer relationship over the last couple of years, Chano Fernandez, who's the CEO, Co-CEO at Workday is going to be joining as co-CEO with myself. And I'm really excited about this because I've been talking with him for a while. Really about how we've been working on AI and really its applications and kind of like building this agentic autonomous CRM. And we had this big product launch in September, where we really unveiled the first time our marketing agents. We can do marketing autonomously, our customer agent, they can deliver customers. And we've been watching the early results from that. And I'm convinced from the numbers we're seeing, even though the actual penetration is relatively small, the quality of the experiences we're able to deliver now through AI with the customers that have adopted and what I can see is like the road map ahead of us, the next 2 years, the entire CRM category is just like everybody is going to default to their agentic version of that. So there will be a leader there. And obviously, we intend to lead that. So I've been talking with Chano, my Co-Founder, Ed, and I said, I really want to spend the next 24 months and go very deep on this. And I could use a partner to help me really just abstract or take off my plate as much of the rest of the business as I can. So anyway, I've known Chano for a long time. He and I -- CEO, I really admired for his intellect and his just raw intensity. And obviously, has a lot of experience doing businesses at scale. Workday is a wonderful business. International, he's from Europe, gets -- constantly pressing me on like, hey, how is Klaviyo growing outside of ex U.S., North America and obviously understands large enterprise. And so we looked at this and said, like, hey, he's an excellent operator, somebody I deeply trust and he has these expertise. And so, yes. I mean I'm very excited because like now I'm able to ramp up some of the time I'm spending with our product engineering teams and customers as we're ushering in this kind of agentic future. And I think also he's excited like, hey, look, I can help us really unlock some doors, right, and execute on both international like we talked about in our enterprise. So my hope is that -- or my belief is we can actually do all of those because there is going to be a category-defining CRM business that does in the AI era. And obviously, we believe that should be helpful.

Yes. Okay. No, good luck. That sounds like really exciting. Amanda, and I mean this was maybe part of that, like -- but the one surprise from the Analyst Day was kind of the margin guidance, which was probably -- we were all kind of going top right and straight away. But listening now on the opportunity side, there's kind of a lot like how do the discussions go about like, okay, maybe we want to spend more money now because this is important for us. Like can you speak to that?

Yes. I mean we're a growth company, and we're going to continue to drive growth. And there is so much growth and so much market opportunity ahead of us, and that is only continuing to increase and open up even more market with everything that's happening in AI. So we're incredibly excited about the growth that is ahead of us. And we can deliver on that growth, while expanding margins at the same time, and you saw that in our numbers. And it's one of the great things about working with Andrew and also working with Ed as Co-Founder is that there is this long-time belief that it doesn't have to be an either/or between growth and continuing to deliver strong margins. And so they've always believed that it takes some extra creativity that you have to push people a little bit harder, but that with the right creativity and now increasingly with the way that AI is changing our business, you can keep driving that strength. And it's not so much about efficiency, it's about actually making the product and the outcome better because you're thinking about things from an entirely different point of view. So the way that we think about the business going forward is that we're going to continue to invest behind these great growth opportunities that we have. We're going to lean in on it, and we're going to do it with the same creativity and focus that we've always had. And I think you can see it in our results as a company. Over the last several years, we've been consistently above Rule of 40, and we've got really strong confidence that going forward, we can continue to be as well.

Yes. Good. Actually, I'll leave that as a good closing statement. That was really good. I really enjoyed our conversation. It looks really exciting. I'm looking forward to observing you on that journey. Thank you.

Great. Thank you.

Awesome.