Did Klaviyo (NYSE: KVYO) Hustle Revenue Growth Leading Up to IPO?
Disclosure: I have taken positions short the equity of Klaviyo (NYSE: KVYO).
Summary:
- There is strong evidence that suggests Klaviyo (NYSE: KVYO), one of 2023’s few tech IPOs, is increasingly reliant on privately owned company Retention.com and similar businesses for Klaviyo revenue generation.
- Klaviyo’s revenue model relies on “contact list size” or the number of contacts on lists that are passed through Klaviyo’s email, SMS, and other offerings. Klaviyo relies heavily on contact list size growth given Klaviyo’s long tail distribution with the vast majority of its over 130,000 customers spending under $50,000 annually through Klaviyo.
- Retention.com is a service that markets directly to Klaviyo customers, promising Klaviyo customers high returns on investment through its Personally Identifiable Information (PII) data collection network. Retention.com promises to turns anonymous visitors to Klaviyo customer websites into email addresses for its customers to then pass through Klaviyo.
- Retention.com makes no attempt to adequately explain how their process of turning anonymous visitors to e-commerce websites into email addresses it then sells to brands is legal, instead relying on gimmicky sales tactics like throwing influencer parties and operating B2B affiliate marketing tactics to land new Klaviyo customers.
- Retention.com uses tactics such as shady payday loan advertising posted on social media to bait American consumers into giving their personal data to Retention.com’s data collection network. This PII customer data generated in this process is then used as Retention.com’s justification for consumer consent for emails, to which it sells access to Klaviyo customers. This data is constantly resold over and over again to Klaviyo customers to boost the sizes of lists Klaviyo customers feed through Klaviyo, increasing their Klaviyo costs.
- There is strong evidence suggesting that in the two Klaviyo fiscal quarters leading up to Klaviyo’s IPO and listing on the New York Stock Exchange, Retention.com engaged in a blitz of activity which pumped revenue to Klaviyo even though Retention.com’s practices are legally questionable and outside of Klaviyo Terms and Acceptable Use Policy.
- Klaviyo does not make mention of Retention.com in its partner materials, yet Retention.com directly targets Klaviyo customers and in fact Retention.com leads with this messaging on its website and in public-facing marketing materials.
- Similar companies such as GoBot have also popped up and target Klaviyo customers by promising Klaviyo customers 10x email list sizes by turning anonymous site visitors into email contacts to be fed through Klaviyo, which pumps up Klaviyo revenue.
I. Klaviyo (NYSE: KVYO) Background
Klaviyo is a Massachusetts-based software company which, per their recent S-1:
…provide[s] businesses of all sizes with powerful technology that captures, stores, analyzes, and predictively uses their own data to drive measurable, high-value outcomes. Klaviyo enables businesses to drive revenue growth by making it easy to bring their first-party data together and use it to create and deliver highly personalized consumer experiences across digital channels.
Klaviyo sells multiple offerings to their heavily e-commerce and heavily Shopify customer base. Their bread-and-butter, however, has for years been their email platform, their SMS capabilities, and their push notification capabilities.
With Klaviyo, customers are able to create workflows, or Flows as Klaviyo calls them, based off conditional logic (eg. “if this event is met, fire this message, via emails, to this set of customers”). Klaviyo is the technology that powers much of the email, SMS, and push notifications that one may receive as a customer of various e-commerce brands, especially around the Shopify network, and Shopify is a shareholder and strategic investor in Klaviyo.
Klaviyo’s distribution is heavily long tail, with a reported 130,000+ customers but only 1,458 customers contributing ARR of over $50,000 per the S-1.
Klaviyo’s revenue model is based on the number of contacts that are put into the platform by their customers. This is a “list size” revenue model — the bigger the list of contacts with email addresses uploaded into the platform, the more a Klaviyo customer pays.
Klaviyo’s pricing tiers may be viewed here, on their publicly available pricing page. I encourage readers to open this in a new browser tab and to explore the pricing models.
It’s clear that Klaviyo offers breaks for customers and a pricing model that offers modest unit discounts as the number of contacts on customer lists increases.
Who are contacts? Who can Klaviyo customers email? Well, that’s simple. Anyone who voluntarily fills out a form on an e-commerce brand website who consents to being emailed could qualify. Anyone who places an order on an e-commerce website partnered with Klaviyo and thus provides an email and other contact information like an address could qualify.
This is a standard practice; if a consumer gives a brand consent to contact them, the brand can contact them. Of course, it’s mandatory at least in the US to offer an opt-out or “unsubscribe” option in emails or SMS (eg. text the reply of “STOP” to stop receiving texts from a brand or entity).
But what is actually driving the list growth of Klaviyo customers? Of course a growing brand that generates more orders or more voluntary forms on their site would grow the brand. A brand that served 50k customers last year, and an additional 50k customers this year may have an email list of 100k customers, net of anyone who opted-out.
But there is a darker way of growing lists that are fed into Klaviyo, and thus drives Klaviyo revenue upward…
The darker way is using Retention.com and similar tools to take people who have not opted-into receiving emails from a specific brand, but who have merely visited a website and browsed around as anonymous visitors.
Most website visitors for most e-commerce brands actually never convert to revenue. Most consumers check out a brand’s website, either organically or through an ad, and only stay on the website for a limited period of time. They may look at some specific products and browse around for a few minutes, but never did they actually consent to receiving email or SMS communications from that brand. Through cookies and ad networks, they may be served an ad for the brand the next time they are Facebook, but the brand does not email or SMS them.
So what is Retention.com? Retention.com is the key to future Klaviyo revenue growth that is a legal loophole inside another legal loophole that is probably not legal anyhow.
II. What is Retention.com?
Retention.com is Klaviyo pumper company that “explodes” contact list sizes of Klaviyo customers by turning anonymous website visitors into email contacts which then pass through the Klaviyo platform and drive incremental Klaviyo revenue.
Retention.com GTM is aimed directly at Klaviyo customers.
Retention.com utilizes an influencer-based, FOMO B2B marketing strategy. Even as recent as the past few days, CEO Adam Robinson was posting on social media about the end of trade shows in favor of influencer-led events.
However, nothing about Retention.com makes any sense.
Retention.com is so out to lunch that they even have a page called “How is Retention.com Legal?” on their own website, with no answers to anything, just logical gymnastics about why Retention.com could even be considered legal.
Retention.com makes it clear they they utilize a partner network of shady ads to collect data on individuals, whom Retention.com then considers “opted-in” and able to be marketed to by e-commerce brands.
One of these sites is a payday loan honeypot called timelypayday.com.
Retention.com utilizes a payday loan-style honeypot to attract consumers who are in need of a $1500 “pre-approved” loan. Given that the median American has less than a few thousand in savings, these payday loan and similar ads yield email addresses, contact info, and other PII which Retention.com then claims to use for stuffing Klaviyo list sizes by matching this data with anonymous web browsing activity and reselling this data over and over again to Klaviyo customers.
What is even more absurd is that Retention.com does not even post their own marketing collateral provided by a law firm about how Retention.com is legal, instead displaying a “[COMING SOON]” message.
This is a loophole inside another loophole with a link to a law firm’s legal packet that doesn’t exist but is “[COMING SOON]” plus a link to a United States Federal Trade Commission website page that also does not exist if you click the link as of December 18, 2023.
All of this begs the question: what is the actual quality of the “partner network” leads if Retention.com is resorting to payday loan online ads? Clearly people who are struggling to come up with $1500 outside of their bank accounts or credit cards are not great discretionary spenders for various e-commerce lifestyle brand Shopify+Klaviyo websites.
However, by sourcing a large number of these people and then reselling their data to Klaviyo customers to load into Klaviyo, Retention.com is able to increase Klaviyo contact list sizes, which pass through to Klaviyo in the form of incremental Klaviyo revenue.
III. What are the Numbers? How Much Klaviyo Revenue is Juiced by Klaviyo Customers Running Up Their Contact Lists via Retention.com?
Ultimately, the question here is how much of this is a material impact on Klaviyo’s revenue.
If this is simply, say, 50 customers of a very small size operating on this, yes, it may be scammy and yes, it may mean Klaviyo is passing through “bad” contacts while charging customers, but it would not be very material to Klaviyo’s revenue.
However, I believe there is significant evidence that shows Retention.com’s presence is rampant in Klaviyo’s distribution, and that it significantly impact’s Klaviyo’s revenue and NRR numbers.
First, Retention.com’s CEO Adam Robinson has claimed that Retention.com has grown significantly in the past few years due to reducing standard Retention.com prices from $7,500/month to $2,500/month, or $90,000/year to $30,000/year.
Additionally, Retention.com has offerings set up to market to smaller e-commerce businesses. For example, on their website page explaining how overages work, they note an entry level offering of 1,500 contacts sourced per month, at a cost of $330/month. Over a year, this is 18,000 contacts added for a yearly rate of $3,960.
For example, a business that uses Klaviyo’s core email services and starts the year with 40,000 Klaviyo contacts, then uses Retention.com’s $330/month 1500 contacts/month offering to increase list sizes would at the end of the year have 58,000 Klaviyo contacts just from the presence of Retention.com alone.
Per Klaviyo’s public pricing page, this alone would move a customer from a $600/month plan, or annualized to $7,200/year, to an $860/month plan, annualized to $10,320. That’s a delta of $3,120 year over year to Klaviyo, and this is just for a relatively small customer starting with a 40,000 list size on a 1500 contacts per month Retention.com plan, and this is only on the Klaviyo email plan. Many Klaviyo customers have email + SMS plans.
Just by using this starter, entry-level Retention.com plan advertised on Retention.com’s website for 1500 contacts per month over a year, this Klaviyo email customer that started with 40,000 contacts in Klayivo is paying a rate of ~43% more to Klaviyo due to these Retention.com sourced contacts. This is great for Klaviyo revenue and NRR.
How many customers have juiced their contact lists with Retention.com? How many contacts are these customers juicing through Klaviyo?
If even 1000 Retention.com+Klaviyo mutual customers, on average, cause Klaviyo to collect an additional $20,000 per year per customer, that’s an additional $20,000,000 per year in revenue to Klaviyo.
Retention.com is not the only player in the market either, although they are loud and rely on influencers such as their CEO Adam Robinson and an affiliate network to spread the brand message.
A similar player, GoBot, has popped up as well and claims “hundreds” of customers, similarly directly targeting Klaviyo customers.
IV: The Big Klaviyo Short
Why are all of these brands confessing in case studies? Why are they publicly, on the internet, admitting to sending emails to site visitors who have not actually signed up to be contacted by their specific brands? Why are companies like Retention.com and GoBot admitting that they pump incremental revenue to Klaviyo by “exploding” Klaviyo costs for Klaviyo customers without actually explaining in clear terms how these solutions are legal?
Why does Retention.com have a payday loan data collection honeypot called http://timelypayday.com/ displayed on its website as a way to generate PII about specific customers who signed up for a $1500 payday loan?
They’re not confessing. They’re bragging.
The CEO of Retention.com Adam Robinson himself is an ex-Credit Default Swap trader at Lehman Brothers. It says so right on his LinkedIn profile.
A few things here are very clear:
First, Klaviyo grows revenue through increases in contact list sizes. There are SMS and similar upsells and cross-sells, but Klaviyo’s revenue growth and NRR are inherently tied to their customers growing list sizes they then pass through Klaviyo’s offerings.
Second, the amount of Klaviyo customers using solutions like Retention.com and GoBot are increasing as of late. Retention.com has dropped prices and targeted more customers over time. This is very clearly an increasing source of revenue generation for Klaviyo. Even just a few thousand customers 10xing or more their contact lists and passing this through Klaviyo has a material impact on Klaviyo revenue and growth metrics. Even if a customer adds thousands of email contacts, then churns from Retention.com after a few months, these email contacts do not necessarily churn from Klaviyo. The list sizes will continue to be bloated unless there is intervention, and Klaviyo will continue collecting this incremental revenue.
Third, Klaviyo’s own acceptable use policy prohibits Klaviyo customers from using Klaviyo to email customers on lists of people who have not specifically consented to receive communications, promotions, or advertisements from the Klaviyo customer’s specific business.
Fourth, Klaviyo management is clearly aware of organizations like Retention.com and GoBot. Retention.com’s CEO Adam Robinson has over 50k LinkedIn connections/followers and he posts constantly. The e-commerce software industry is not large, and the Shopify/Klaviyo subset is even smaller. It is not possible for Klaviyo management not to know about Retention.com and the claims they make about “exploding” revenue for Klaviyo.
The silence from Klaviyo management is deafening, even as these solutions that “explode” revenue for Klaviyo, directly in violation of Klaviyo’s acceptable use policy, grow and continue to very publicly market to the long tail, influencer-driven, lifestyle brand Shopify+Klaviyo entrepreneurs.
Fifth, there is a classic pattern of pumping behavior that seems to have occurred in late 2022 to mid-2023 leading up to Klaviyo’s IPO. On Klaviyo’s financials, this would show up as incremental revenue in FY 2023 Q1 and Q2 which align with the same calendar dates (Jan 1, 2023 to June 30, 2023) and play into a “growth” and “profitability” narrative that pumps the Klaviyo stock price.
Retention.com CEO Adam Robinson reports that in August 2022, before Klaviyo’s IPO, Retention.com was at an annual run rate of just over $10M. On the other side of Klaviyo’s IPO, Adam Robinson reported on Dec 11, 2023 that by the end of November 2023 his business has more than doubled its annual run rate. Many of the reported gains seem to have occurred in the months leading up to Klaviyo’s IPO, in late 2022 to mid-2023.
If run rate growth was 2% for the 7 straight months before November 2023, 2% for 7 months simply does not compound to ~2x growth over 15 months without several big months in early 2023 leading up to the Klaviyo IPO.
In the two Klaviyo fiscal quarters reported on Klaviyo’s S-1 leading up to Klaviyo’s IPO, Retention.com hired and onboarded a large sales team, significantly increased their GTM spend, signed up many customers who seem to have churned off Retention.com after boosting their Klaviyo contact list sizes and thus Klaviyo revenue, then CEO Adam Robinson fired most of the sales team he reportedly had hired just a few months earlier.
V: Summary
Klaviyo is clearly benefitting from Retention.com, GoBot, and similar services that take website anonymous visitor traffic and turn them into emails. Website traffic volume is an order of magnitude higher than the volume of individual humans who actually sign up to be contacted or place an order through a Klaviyo customer. There is a clear pattern of increased sales activity of these tools in the several fiscal quarters leading up to Klaviyo’s IPO.
Klaviyo management, namely Chief Executive Officer Andrew Bialecki, has made no public statements on Klaviyo revenue generated from tools like Retention.com and GoBot which clearly led to an increase in Klaviyo revenues leading up to an IPO. Even though these tools publicly promote “exploding” Klaviyo contact list sizes and even though Klaviyo customers that use the tools are clearly in violation of Klaviyo’s acceptable use policy, Klaviyo benefits greatly from their presence.
Andrew Bialecki would be wise to address the presence of tools like Retention.com and GoBot, and to specifically address the role of these tools in Klaviyo’s revenue, in addition to how Klaviyo processes data that comes from these sources. The silence to date is unacceptable.
I am calling on Andrew Bialecki to do the right thing and address the uptick in sales activity of Retention.com and GoBot and any similar tools that “explode” Klaviyo revenue in the months leading up to Klaviyo’s IPO.
Given that Retention.com’s CEO Adam Robinson reportedly significantly increased Retention.com GTM spend in the several Klaviyo fiscal quarters leading up to Klaviyo’s IPO, Klaviyo management must address any financial relationship between Retention.com and Klaviyo. Given that Retention.com CEO Adam Robinson is himself an influencer who promotes “exploding” Klaviyo contact list sizes, and given that Retention.com utilizes an affiliate marketing program themselves, Klaviyo is required by the Federal Trade Commission to disclose any financial relationship with influencers. The law is very clear.
More seriously, if Retention.com CEO Adam Robinson holds or held Klaviyo stock pre-IPO or post-IPO, while simultaneously cannibalizing Retention.com’s balance sheet, which clearly happened in late 2022 to mid-2023, this needs to be properly disclosed as well.
Klaviyo customers who play by the rules and do not use tools like Retention.com and GoBot should demand answers from Klaviyo management. Klaviyo customers who play by the rules and individual consumers who are spammed or contacted without consent from e-commerce brands can report suspicious activity to the United States Federal Trade Commission via https://reportfraud.ftc.gov/ which is set up to collect reports on frauds, scams, and bad business practices.
Investors would be wise to consider where Klaviyo (NYSE: KVYO) revenue is actually originating, as there are clear patterns that show a continued increase in Klaviyo revenue leading up to Klaviyo’s IPO that can be attributed to these tools that “explode” Klaviyo contact list sizes.
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This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. Lauren Balik does not represent the interests of any fund or of any investor other than herself. Past performance is not indicative of future results. This content speaks only as of the date published. Any projections, estimates, forecasts, targets, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
