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

Yes. When customers usually start with e-mail, maybe add SMS and then adopt maybe analytics service after that, where does that kind of expansion sequence breakdown today? And what are you kind of changing to make multiproduct adoption more repeatable and potentially drive NRR kind of up going forward?

Yes. Good question. First thing is, one -- when you look at one of our nice growth levers today, and we see it going forward is this multiproduct adoption because we've been launching -- I mean, for many years, we've been more an e-mail company, then we came with text and now lately either because of the agents or KSocial or some of other products or analytics products and some more things that we'll be announcing, we're becoming much more of a multiproduct customer -- sorry, a player. So that is a very, very healthy clip with us, right? As you go more into the enterprise, I think you're going to be -- we will be landing a little bit with more than one just single product, maybe 2 to 3 products to start with, right? If we get into better motion and better repeatability and the customers understand the value of why more, we will go on a larger land. But I think that will take a little bit of timing, right? So I believe, yes, over time, you're going to see us landing larger, especially for the enterprise customers, but you're going to see us kind of going back to our PLG motion that many times we will start with e-mail and kind of upgrade with text as a typical follow-up. And again, that has great unit economics for us because it's very easy, kind of the customer acquisition costs are very low over there and the kind of the business dynamics are pretty good. And then we said like when we have these multiproduct customers, they stay with us longer, starting with, of course, 6 points more on ARR that we've been commenting on multiproduct customers. Of course, that impacts as well the NRR at the end of the day.

And then you said service spend could be maybe as large of a market opportunity as marketing spend for some of your customers. What kind of has to change in that product maturity and go-to-market execution for that to be more visible in the model? And you kind of spoke about this earlier when you talked about marketing being kind of that main buyer right now still. Do you think there's a future where you would -- there's actually multiple personas, maybe service is one of them that are kind of reflective of your main buyer?

Yes. We're starting going more to the service buyer, but of course, marketing is our natural landing spot and where we definitely have the trust. How do you build that trust with them more of the service buyers, again, proving yourself, right? So the first thing that needs to start changing and easy start changing is kind of you have a much more product maturity as we've been saying when we launch customer service, it becomes, I'd say, a much more mature product not that long ago, a couple of months ago when we have things like multi-language and we have things like customers and skills, and we became really helpless in terms of having many more APIs and we became profile enrichment in terms of the things that we were learning from customers' interactions we were bringing in the profile with marketing. And of course, we keep improving that product. So that was at the point that I considered a couple of months ago that this product is becoming more mature. That is at the point as well we've been having to start, always start to have more conversations with large customers in terms of agreeing on some proof of concepts and some use cases and see if we can perform better kind of their solution that they already have in-house, things like, again, in a simple way, I would say like let me prove you with the conversations that you're having that we can get higher resolutions. You let us work a couple of weeks on it. And kind of -- those are some of the motions that were going on. So I think that product maturity, that product improvement, call it, at the end of the day, getting to a much better product market fit and as well proving ourselves a little bit more up at scale in terms of the market is some of the things that needs to happen for service becoming a significant business as large as marketing or who knows, even larger? I don't know. Time will tell.

And then as you guys look at expanding your product portfolio, other kind of verticals within horizontal software, they are kind of doing the same thing. And so as you're seeing enterprise customers within that backdrop increasingly talk about reducing the number of systems they have to manage, do you see AI as an accelerant for consolidation because that context becomes more important? Or does it create more room for specialized tools? And how do you think about the ultimate winners in that scenario when everyone kind of is trying to expand their footprint?

Yes. Frankly, I see the ultimate winners in that scenario, the ones that have the right infrastructure to the right data understanding in terms of managing not just the scale, but being able to get much better understanding of who are the customers I am liaising with and being able to provide better experiences. I believe we are really well basically placed there, and we're proving that one. I like -- what we're seeing in terms of the AI and the LLMs, we're seeing, and we've said it, right, like the highest user of NCPs, they use our platform more. We're saying like 16% more. But as we also look into a world where we're ourselves are going to have much more agents interacting on our behalf in terms of either looking for opportunities, promos or options for us in terms -- and comparing, e-mail is a phenomenal channel because it's the cheapest one. When you have kind of agents interesting on your behalf, you can consume many more e-mails because you are not bothered like I need to read this other one. But if you can explore many more places to look for much more offerings and give me the better deal, why not? So what we see is that is going to produce a tailwind of interactions. And again, with channels like e-mail being the most efficient and cheapest one and me not being back as a human kind of the one to going through all of those, but being my agents doing on my behalf potentially for finding me the best answer and the best outcome on the other end, why not, right? So that's what we see.

And we will be opening it up for maybe a couple of questions at some point, so if anyone wants to start thinking about potential questions to ask, please do. Wanted to ask, so KSocial kind of bring social conversations and identity signals into your consumer profiles. Do you view this as more of a just larger opportunity with another outbound channel? Or do you think that you could use social engagement to kind of improve Klaviyo's data and view of consumers in general for your customers?

Yes. Great question. As we do -- what we see social is -- so what KSocial does is helping customers to increase their profile space, so reaching out to more people. And the other way that I see, it's helping them to create much more targeted content. Again, if I can understand where my user base, not only as a profile kind of keep me consent and starting to engage with them, sometimes the social channels well understand what are they talking about or what are they -- their preferred content and how I can fine-tune that one for later on kind of flows or automated campaigns, that is great for me, right? So right now, mostly, we're seeing it more in some of our more PLG motion and some of our SMB customers, again because they are much more focused on increasing kind of their number of profiles, right? It is much more basically an upsell motion today, but we're starting to see some of the large customers as well, both on profile, but especially on content start to taking on to KSocial.

Anyone in the audience have any questions?

What do you think -- how do you see smaller brands emerging in the next year or so of what they are not able to do today and what they could be achieving in a year, especially with your company's help? Do you have any vision for that?

Yes, what a great question. Yes. Well, the first thing is like if you see we've been adding a lot of new logos is because, I mean, we've never seen so many entrepreneurs like today, right? And what we are expecting to see is like many of those will grow with us, of course, some others potentially will not make it that successfully, right? Even though Klaviyo has traditionally been very easy to use, things like, again, Composer kind of think about the ability to create campaigns. So if I'm going to be a small brand, if you're giving me the opportunity, a, to even onboard much easier because it's just almost like just interacting with the solution even very soon with voice in the way of setting up my flows or setting on my forms or my campaigns, that makes the first barrier to make it even easier, right? The second thing is if I'm constrained because I cannot have marketing people supporting on doing more campaigns per week, I would like to do 2, but maybe I can do because those are my constrained resources, then I can see that they would benefit from things like Composer, right? And then they leave and the constraint or I don't have enough ideas on what to do. And again, Composer will be helping out there, right? So I think we're going to help smaller brands to become some of them really big brands in a very efficient way from a cost perspective and kind of overall kind of human force perspective, if you want to think it that way, right? And then, of course, with things like KSocial that I just mentioned then helping me as a small brand to acquire profiles because that is, again, I want to grow my business, start by me thinking what are healthy profiles that could be acquired. And if you can help me out to make that, right? So I think we -- again, that's why I say like -- and thinking about all this, we talk a lot about this personalization in terms of, a, sending the right message to the right audience at the right time by the right channel, and that matters a lot. But I think as well then the optimization and automation that may come with some of these tools for smaller brands, yes, we're going to see really big businesses with real people, right? And we see some of those today, right? We see some of those today.

The question I have, thank you for those comments, but it's actually related to that. Can you just talk about the competitive landscape, like who else is out there? With -- especially now with AI coming through, can people actually do this on their own and just your thoughts on that?

Yes. Depending on what we call people could do on their own. I mean the whole kind of -- I don't think like the commodity of the deliverability, but they can have kind of infrastructure in real time. And when I talk about the data mode and the ability at which we ingest and store data at scale, and I even mentioned this 100 million messages in 20 minutes, no, you can't, right? You can't. I mean that will -- it not requires a huge investment, but will require -- it took us like 14 years to build, I don't know, but it's definitely not something that you can, right? In terms of the competitive landscape, we've not seen much change in the last year, right? Clearly, as we go more into the enterprise, like before, we will be seeing players like Braze much more than we used to see before. But that is more a motion of us going into areas that -- or parties that we were not invited before or we were not part of. So that's most likely just if anything will accelerate and will accentuate more than any other thing. But no other kind of callouts in terms of significant competitive dynamics change. Other than maybe the one you see at the more of the smaller of the market in terms of the Intuit Mailchimp, right? And some of those basically customers that will be looking potentially for more product innovation. And moving forward into the future, as many of those kind of look for other new solutions during the course of the next few months or right now, yes, that is happening. Can Klaviyo be a beneficiary of those? Yes, it is already potentially being and certainly will be and there will be others as well.

Right. I'll take the reins back then. So 2 things are kind of -- 2 dynamics you guys have talked about more recently are, one, like newer products like Composer are not kind of fully reflected in guidance at this point. Management has also talked about growth deceleration hopefully stabilizing over the next couple of quarters. And I think that's baked into guidance at this point as well. What kind of evidence would give you confidence that some of the newer product S curves could maybe drive reacceleration rather than simply acting as an offset to the maturity of your core spacing?

Yes. Great question. Well, if you think about our business and we think about different growth curves and foundation that we do have over there, clearly enterprise, and we'll talk a little bit about that one, but that part growing kind of 35%, 36%, so growth accretive, international kind of growing 36% right now. And I don't think there is anything differently we have to do in international to kind of keep that sort of clip of foundation growth, meaning like even new countries or whatever just because even some of the new products are just getting ready for international in terms of language and some other localizations that were required and were not before. So that gives us a little bit more potential penetration in the countries we are today present, right? And then kind of the upsell and cross-sell motion. So we see those like good levers for us in terms of the growth foundation and how we look at the business in terms of growth levers going forward. In terms of agents, the hard part to call where we -- what we like is some of the metrics that I talked because right now, we're focused on adoption. And before, of course, thinking to much what's going to be the monetization, right, is make those customers happy and great to -- get to a great product market fit. And that's what we're working right now, to be honest, both on the Composer on the Customer Agent, create a phenomenal outstanding product market fit, right? So clearly, it's hard to call. If you see all these products, once they are adopted and when customers see value and when the customers start to repeat, what exactly kind of when that milestone happening in terms of the hockey stick of the revenue curve, right? That's why we decided like we're going to focus on adoption. We're going to focus on repeatability. We're going to focus on customer side before we think about monetization. And of course, that is we're incentivizing our customers for right now at the same time that we're engaging more with them and we understand what product market fit looks like in terms of great product market fit. And that's why we decided not to put anything on guidance on Composer, right? Certainly, they should be -- there is money in customer service in our guidance, right? Again, certainly, yes, do I believe that those products are going to be growth accelerants? No doubt about it. If you ask me how much exactly [indiscernible], I'll tell you, I have -- or will have a much better idea by the end of the year because, again, of all what we are improving into those products and kind of how we are interacting now with our customers in understanding what the potential is, but also what are the use cases that are kind of most relevant and most valuable to them and we are building for.

I feel like I have to ask 1 about agentic commerce. So we've heard a lot about agentic commerce acting as a new discovery channel for a lot of brands. But if consumers kind of increasingly delegate product discovery and purchase decisions to AI assistants, like where do brands still create differentiation? And how does that kind of change the role that Klaviyo could play in that consumer relationship?

Yes. I talk a little bit about that one, Callie, but it's a great question. It's something that not only kind of the early data that we do have, like people that use more kind of NCPs and people use more of the connection, use more of the platform. But I talk a little bit about my belief that if all of us will have agents and those agents kind of interacting, there's just going to be more activity. There's going to be more interaction. Some of the cheapest channels, they're going to even benefit much more in terms of increased usage. That's definitely the most efficient one today that we all know is e-mail. Of course, text and [indiscernible] will benefit, but we have to prove much more continuous with the ROI because customers, they invest more in text, they're usually much more sensitive to I want to understand predictability, I want to understand ROI in order to keep investing because that is a much higher one. So if you have the infrastructure ready to do these interactions on those in CPM, all those agents interacting, and we believe we do have, that is going to basically increase activity. It's going to increase the number of interactions. It's going to increase the number of cents and consumption and that benefit us, right, in terms of how do we monetize.

And one last one for me. I feel like you guys have so many different new products out in market, kind of new opportunities in service, the agentic side of things. We didn't even talk too much about the Klaviyo's CDP products and things like that, plus international is growing really healthily. You have downmarket versus upmarket. How you kind of segment between all those different priorities at any given time? And given it feels like there's a lot of like call options on growth over the next 12 months, how would you kind of prioritize those different...

Yes, it's a great question. We -- when you look at us internally, we're pretty focused on agents and enterprise overall, right? So clearly, international is there, and we'll continue [indiscernible], but again, making -- there is still room to keep that foundation even without not doing much because, again, it's a question of penetration, is a question of what we see in the referenceability that we're having in some of those markets. We talk about, beyond retail, we've become a little bit more prominent, and we talk about we have a very healthy clip on net new logos last quarter, 9,000 or so. Many of those came to hospitality and other verticals where we keep a steady pace in terms of growth. But again, it's not at the same level of priority like enterprise and agents. So we're going to continue basically focusing on enterprise and agents. Clearly, again, tomorrow is our customer conference. So you'll hear more from us around data and infrastructure, around personalization, around agents. So there will be more things there. So stay tuned. They are going to be very interesting. So yes, it's very exciting because we have a customer base. We have more to upsell and cross-sell. Clearly, multiproduct will continue to be a good growth lever for us.

Thank you so much, Chano. Really looking forward to hearing all the product innovation out of K:BOS during the rest of the week and good rest of your day.

Thank you, Callie, for having me. And thank you all of you for making the time. Okay. Thank you. Thank you so much for coming. Thank you. Good bye.