International Expansion And AI Features Will Attract Larger Enterprise Clients

Key Takeaways

• Klaviyo's expansion into international markets and strategic partnerships aim to drive revenue growth through new customer acquisition and expanded service offerings.
  
• Advanced AI capabilities and a move upmarket are poised to boost customer retention, engagement, and annual recurring revenue from higher-value contracts.
  
• Klaviyo's revenue growth is at risk from macroeconomic changes, pricing strategies, infrastructure costs, international execution, and potential limits in customer expansion and cross-sell efforts.

Catalysts

A technology company, provides a software-as-a-service platform in the United States, other Americas, the Asia-Pacific, Europe, the Middle East, and Africa.

• Klaviyo's expansion into international markets, with significant progress in Europe through local language support and sales presence, is expected to enhance revenue growth as the company taps into new customer bases.
  
• The development of over 200 new platform features, including advanced AI capabilities for content creation and analytics, positions Klaviyo to drive more efficient revenue generation and improve customer acquisition and retention efforts.
  
• Strategic partnerships, such as the agreement with WooCommerce, are designed to expand Klaviyo's market reach and customer base, potentially increasing revenue through expanded service offerings and customer growth.
  
• The move upmarket, attracting larger enterprise clients and expanding relationships with existing large clients, is likely to boost annual recurring revenue and enhance net margins due to economies of scale and higher-value contracts.
  
• By integrating AI and analytics deeply into its platform, Klaviyo aims to enhance customer engagement and value, which could lead to improved earnings as customers see higher returns on investment and increase their spending on Klaviyo's services.

Klaviyo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Klaviyo's revenue will grow by 21.9% annually over the next 3 years.
• Analysts are not forecasting that Klaviyo will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Klaviyo's profit margin will increase from -4.9% to the average US Software industry of 12.1% in 3 years.
• If Klaviyo's profit margin were to converge on the industry average, you could expect earnings to reach $204.7 million (and earnings per share of $0.68) by about April 2028, up from $-46.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 93.2x on those 2028 earnings, up from -183.5x today. This future PE is greater than the current PE for the US Software industry at 30.2x.
• Analysts expect the number of shares outstanding to grow by 3.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.39%, as per the Simply Wall St company report.

Klaviyo Future Earnings Per Share Growth

Risks

• Klaviyo's reliance on forward-looking statements involves risks related to macroeconomic changes, which, if not managed properly, could negatively impact revenue and earnings.
  
• The pricing changes Klaviyo has implemented, particularly enforcements based on active profiles, could lead to increased churn and impact customer count and revenue.
  
• Significant infrastructure investments to support larger customers might pressure gross margins, potentially affecting net margins if these investments do not scale efficiently.
  
• While international expansion shows promise, there is execution risk involved in ramping up local teams and market presence, which could affect the growth rate of international revenue.
  
• The stabilization of Net Revenue Retention (NRR) is encouraging, but if expansion and cross-sell efforts across the customer base do not continue to improve, revenue growth could be tempered.

Valuation

• The analysts have a consensus price target of $51.381 for Klaviyo based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $42.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $204.7 million, and it would be trading on a PE ratio of 93.2x, assuming you use a discount rate of 7.4%.
• Given the current share price of $31.0, the analyst price target of $51.38 is 39.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.