10-Q: Klaviyo Reports Q2 Loss Amid Strong Revenue Growth

Klaviyo, Inc. reported increased net losses for the second quarter and first half of 2025 despite significant revenue growth driven by new customer acquisition and expanded platform usage.

Summary

• Revenue for the three months ended June 30, 2025, increased by 31.9% to $293.1 million, up from $222.2 million in the same period last year.
• Revenue for the six months ended June 30, 2025, increased by 32.6% to $572.9 million, compared to $432.2 million for the six months ended June 30, 2024.
• Net loss for the second quarter of 2025 was $24.3 million, a significant increase from $4.9 million in Q2 2024.
• Net loss for the first half of 2025 was $38.4 million, up from $17.8 million in the first half of 2024.
• Operating expenses increased across all categories, with selling and marketing up 34.0% to $126.6 million (Q2 2025) and research and development up 30.0% to $72.5 million (Q2 2025).
• General and administrative expenses saw the largest percentage increase, rising 51.3% to $54.1 million in Q2 2025, primarily due to increased payroll taxes from option exercises and payment processing fees.
• The Dollar-Based Net Revenue Retention (NRR) rate decreased to 108% as of June 30, 2025, from 112% as of June 30, 2024, attributed to lower comparable expansion of existing customer plans.
• Klaviyo's customer base grew to over 176,000 as of June 30, 2025.
• Customers generating over $50,000 in Annualized Recurring Revenue (ARR) increased by 38% year-over-year, reaching 3,291 as of June 30, 2025.
• International sales accounted for 39.5% of revenue for Q2 2025 and 39.1% for H1 2025, indicating continued global expansion.
• Cash and cash equivalents increased to $935.5 million as of June 30, 2025, from $881.5 million at December 31, 2024.

Sentiment

Score: 5

Explanation: The company demonstrates strong revenue growth and customer acquisition, indicating robust market demand and effective sales strategies. However, this growth is accompanied by significantly increased net losses and a decline in net revenue retention, raising concerns about profitability and the efficiency of customer expansion. The dual-class share structure and dependence on key partnerships like Shopify also present notable risks. The overall sentiment is neutral to slightly negative, reflecting a trade-off between aggressive growth and financial performance.

Positives

• Strong revenue growth of 31.9% for the quarter and 32.6% for the six months ended June 30, 2025, indicating continued market demand for the platform.
• Significant customer acquisition, with over 176,000 customers as of June 30, 2025, demonstrating effective sales and marketing efforts.
• Substantial growth in higher-value customers, with a 38% year-over-year increase in customers generating over $50,000 in ARR.
• Successful international expansion, with non-U.S. revenue accounting for nearly 40% of total revenue, and new operations added in Dublin, Ireland (2024) and Singapore (2025).
• Continued investment in innovation and product development, including AI capabilities and expansion into new applications like Klaviyo Service and Klaviyo Analytics.
• Healthy cash and cash equivalents balance of $935.5 million, providing strong liquidity for ongoing operations and future investments.

Negatives

• Net loss significantly increased to $24.3 million for Q2 2025 from $4.9 million in Q2 2024, and to $38.4 million for H1 2025 from $17.8 million in H1 2024, indicating declining profitability.
• Dollar-Based Net Revenue Retention (NRR) rate decreased to 108% from 112%, suggesting a slowdown in expansion from existing customers.
• Cost of revenue increased by 41.7% for the quarter and 45.9% for the six months, outpacing revenue growth and leading to a modest decline in gross margin (75.7% in Q2 2025 vs. 77.4% in Q2 2024).
• Operating expenses, particularly general and administrative, increased substantially, impacting overall profitability.
• Unfavorable foreign exchange fluctuations contributed to other expense, net, increasing to $(0.9) million in Q2 2025 from $(0.007) million in Q2 2024.
• The company continues to have an accumulated deficit, reaching $(883.6) million as of June 30, 2025.

Risks

• Rapid historical revenue growth is not indicative of future growth, and the company may not sustain its historical growth rate.
• Failure to effectively manage rapid growth could adversely affect business, results of operations, and financial condition.
• Operating in a highly competitive industry with established companies and new market entrants may impact competitive effectiveness.
• Dependence on successful integration with third-party platforms, especially Shopify, poses risks if disruptions occur or relationships deteriorate.
• Unfavorable conditions in the industry or global economy, or reductions in marketing spending, could adversely affect business.
• Inability to add new customers, retain existing customers, or increase sales to existing customers could harm growth.
• History of net losses and anticipated increasing operating expenses mean the company may not achieve and maintain profitability.
• Longer sales cycles and considerable time/expense required for moving up-market to enterprise customers.
• Significant and continued investment in research and development may not translate into new products or efficient enhancements.
• Failure to adapt to technological changes, evolving industry standards, or changing customer needs could make the platform less competitive.
• Loss of senior management or key employees, or inability to attract and retain skilled personnel, could adversely affect the business.
• Collection, processing, storage, and use of personal data subject the company to legal obligations related to privacy and security, with potential harm from non-compliance.
• Cybersecurity incidents or data breaches could harm reputation, reduce demand, and incur significant liabilities.
• Failure to protect proprietary technology and intellectual property rights could substantially harm the business.
• Incorporation of artificial intelligence technology exposes the company to additional risks due to its emerging nature, including false output, bias, and new regulations.
• The trading price of Series A common stock may continue to be volatile or decline regardless of operating performance.
• The dual series common stock structure concentrates voting control with Series B holders, limiting influence of Series A stockholders.
• Reliance on a single third-party cloud-based infrastructure provider poses risks of disruption or capacity limitations.
• Dependence on third-party services for message delivery (email, SMS, push notifications) could lead to loss of customers if disruptions occur.
• Software errors or defects, or difficulty maintaining software, could result in lost revenue and claims.
• Failure to offer high-quality technical support services may harm customer relationships and brand.
• Inability to maintain company culture and core values as the company grows could harm the business.
• Inability to streamline operations and improve cost efficiencies could lead to business contraction and disruptive cost-cutting measures.
• Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations.
• Inaccurate operational metrics could harm reputation and stock price.
• Failure to maintain effective disclosure controls and internal control over financial reporting could impair financial statement accuracy.
• Exposure to foreign currency exchange rate fluctuations could adversely affect results.
• Changes in tax law, including international tax frameworks like OECD Pillar Two and the One Big Beautiful Bill Act, could adversely affect the business.
• Ability to use net operating loss carryforwards is subject to limitation and risk.
• Need for additional capital to support business growth, which might not be available on acceptable terms.
• Partnerships, strategic investments, alliances, or acquisitions could pose integration challenges and dilute stockholder value.
• Future litigation could be costly and time-consuming to defend.
• Indemnification obligations to customers and third parties expose the company to substantial potential liability.
• Non-compliance with anti-corruption, anti-bribery, and similar laws can subject the company to penalties.
• Effects of pandemics, epidemics, or other public health crises may materially affect business operations.
• Liability or harm to reputation from customer activities, content sent through the platform, or data stored on servers.
• Standards used by private entities and inbox service providers to regulate email delivery may interfere with platform effectiveness.
• Failure to comply with regulations and/or industry standards could adversely affect business.

Future Outlook

Klaviyo anticipates continued investment in its platform infrastructure, support, and customer acquisition. The company expects cost of revenue to increase in dollar amount, with gross margin potentially declining modestly in the near term due to increased SMS usage, but overall gross profit dollars are expected to increase. Selling and marketing expenses are projected to remain the largest operating expense, increasing in dollar amount but decreasing as a percentage of revenue over the longer term. Research and development costs are expected to increase in dollar amount but remain consistent as a percentage of revenue. General and administrative expenses are also expected to increase in dollar amount but generally decrease as a percentage of revenue over the longer term. The company plans to continue expanding internationally, including adding more languages and currencies to its platform. It also intends to more actively invest in addressing new industry verticals and product use cases beyond retail and e-commerce. The company believes its operating cash flows will provide sufficient liquidity for at least the next twelve months.

Management Comments

• Our product-led growth strategy enables us to efficiently expand penetration within our existing customer base.
• We believe we have significant expansion opportunities in international markets.
• Our continued success depends on our ability to sustain product and technology innovation to continue delivering value to our customers.
• We believe we will see our overall gross profit dollars increase as customers send more SMS messages if our SMS offering continues to gain traction.
• We expect our costs and expenses to increase in future periods as we continue to invest in our business and increase our product offerings.
• We believe our operating cash flows provide sufficient liquidity to support liquidity and financing needs for at least the next twelve months.

Industry Context

Klaviyo operates in the rapidly evolving marketing automation and customer engagement software-as-a-service (SaaS) industry, primarily serving the retail and e-commerce vertical. The company is expanding its offerings to become a unified B2C CRM, addressing a market gap for consumer brands with high-volume, fast-paced needs. The industry is characterized by rapid technological change, evolving standards, and increasing adoption of AI and machine learning. Klaviyo's growth in SMS usage reflects a broader industry trend towards omnichannel communication. The company faces intense competition from established players like Adobe, Salesforce, Mailchimp, and Braze, necessitating continuous innovation and strategic partnerships, such as with Shopify, to maintain market position and drive growth.

Comparison to Industry Standards

• Klaviyo's NRR of 108% is generally considered healthy for a SaaS company, indicating existing customers are expanding their usage, though it has declined from 112% in the prior year, suggesting a potential slowdown in comparable expansion compared to some high-growth SaaS peers.
• The company's significant investment in R&D (24.7% of revenue in Q2 2025) is in line with or higher than many growth-oriented SaaS companies, reflecting its focus on product innovation and AI capabilities to compete with companies like Braze and Salesforce.
• Klaviyo's expansion into a unified B2C CRM positions it against broader CRM solutions like Salesforce, but with a specialized focus on consumer brands, potentially offering a more tailored solution than general enterprise CRMs.
• The reliance on Shopify for a significant portion of ARR (77.7% as of Dec 31, 2024) highlights a concentration risk not typically seen in diversified SaaS platforms, making the relationship with Shopify a critical competitive factor.
• The increase in net losses despite strong revenue growth suggests a focus on market share and product development over immediate profitability, a common strategy for high-growth tech companies, but one that contrasts with more mature, profitable industry players.

Management Changes

Corporate Governance

Legal Proceedings

• Not presently subject to any pending or threatened litigation, individually or taken together, for which it is reasonably possible to have a material effect on its consolidated financial position or results of operations.
• Not aware of any governmental inquiries or investigations into the business.

Related Party Transactions

• Klaviyo has a collaboration agreement with Shopify Inc. (a related party) for strategic product, distribution, and marketing relationship, entered into on July 28, 2022.
• Fees paid under the revenue sharing agreement with Shopify were $8.1 million for the three months ended June 30, 2025, and $16.0 million for the six months ended June 30, 2025.
• Accrued expenses owed to Shopify for revenue sharing fees were $2.7 million as of June 30, 2025.
• The company capitalized prepaid marketing expense of $8.1 million (Q2 2025) and $16.2 million (H1 2025) related to vested warrants issued as consideration for the Shopify collaboration agreement.
• As of June 30, 2025, $216.0 million of unrecognized marketing expense related to Shopify warrants will be recognized over 4.08 years.
• Shopify partially exercised warrants on April 28, 2025, for 344,382 shares of Series B common stock.

Stakeholder Impact

• **Shareholders:** Increased net losses and a decline in NRR could negatively impact investor confidence and share price. The dual-class stock structure limits the influence of Series A shareholders. Sales by executive officers could also put downward pressure on the stock.
• **Employees:** Headcount increased, but past reduction-in-force (March 2023) and potential future streamlining efforts could impact morale and job security. Accelerated RSU vesting for terminated employees indicates ongoing personnel adjustments. Stock-based compensation remains a significant component of compensation.
• **Customers:** Continued product innovation, expansion into new applications (Klaviyo Service, Analytics, B2C CRM), and international growth aim to enhance value. However, potential issues with third-party integrations (e.g., Shopify), software defects, or technical support could lead to dissatisfaction and churn. Increased SMS usage may lead to higher costs for customers.
• **Suppliers/Vendors:** Increased cloud-based infrastructure costs and outbound communication sending costs indicate growing reliance on these providers. Any adverse developments affecting financial institutions could impact the company's ability to pay suppliers.
• **Creditors:** The company has no debt as of June 30, 2025, reducing immediate risk for creditors. Strong cash position provides financial stability.

Next Steps

• Continue to invest in platform infrastructure and support.
• Acquire new customers and drive existing customers to expand usage.
• Increase headcount in go-to-market team.
• Grow into new markets and pay more in partnership fees.
• Continue investment and innovation in platform, capabilities, and offerings.
• Expand international operations, including adding more languages and currencies to the platform.
• More actively invest in addressing new industry verticals and product use cases.
• Assess the impact of ASU 2023-09 (Income Taxes) on consolidated financial statements.
• Evaluate the impact of adopting ASU 2024-03 (Disaggregation of Income Statement Expenses) on disclosures.
• Continue to monitor and upgrade internal controls as necessary or appropriate.

Key Dates

Recommendation

While Klaviyo demonstrates robust revenue growth and strong customer acquisition, particularly in higher-value segments, the significant increase in net losses and the decline in the Net Revenue Retention rate are concerning. The company is clearly investing heavily in growth and product development, which is typical for a high-growth SaaS company, but the path to profitability appears longer and more uncertain. The dual-class share structure and reliance on key partnerships like Shopify introduce additional governance and operational risks. Given the mixed financial signals and inherent risks, a 'hold' recommendation is appropriate. Investors should monitor the company's ability to improve NRR, manage operating expenses more efficiently, and demonstrate a clearer path to sustainable profitability, while also considering the impact of the concentrated voting power and potential future capital needs.

Keywords

Marketing Automation, SaaS, E-commerce, Customer Engagement, AI, Machine Learning, Email Marketing, SMS Marketing, Data Platform, CRM, Cloud Software, Digital Marketing, Klaviyo