Sep 21, 2023 5 min read

Razor's Edge: Klaviyo KleptoPO, SaaS Value Doldrums, NFT Autopsy

Klaviyo IPO: A SaaS Short Highlight Reel

It's been a while since we had a SaaS IPO and you would think a new one would somehow look and feel different; you would be wrong. Klaviyo out of the gate is trading at about 20x revenue with last six months ARR up like 55% yr/yr. You'd think a marketing automation SaaS at this point that wasn't an AI named Klepto wouldn't be stealing multiple comps from 2014 that no investor needs today, but I guess animal spirits still exist. But what's fascinating about this IPO for me is it has just about every element of every past SaaS IPO i've ever done a short report on. Maybe it will hang around long enough for me to do a super deep dive though honestly at this point my cliff notes should suffice...

You have a big product price increase ahead of the listing (Sept 2022) which sunsets almost immediately after trading begins. In this case it looks to be a mid to high teens boost or basically the company is growing closer to 35%. This was a focus of my Pagerduty short report right after IPO and showed up in NDR pretty quick.
It's really a usage based driven business across messaging and email without that really broken out at a time the market hates anything tied to comms. So, you have a lot of the Twlo short dynamic here with gross margins, carrier costs/relationships, email api backend, telcom regs, privacy, etc. Ie what's really true software ARR. As a reminder, Twilio which owns Sendgrid, trades at an EV of 2x revenue. Klaviyo's S1 discloses 311BL emails delivered over TTM. That's puts them at just over 15% of Sendgrid's processed volume over the same period. (Sendgrid loves to highlight them and shopify as customers..note my math is up to date as their Klaviyo blurb of 10bl emails a month is 2 years old) Can Jamin Ball interview Jeff Lawson and get his take on Klaviyo's EV surpassing Twilio's...that would be some fun clouded judgement.
It's kind of a vertical marketing automation SaaS with 80% of ARR coming from Shopify customers. So, you get all the nice TAM penetration questions that come with those type of shorts I've done before as your profitability seems to be a function of way lower overhead by almost exclusively living off that funnel.
It's got a VAR type of dynamic with Shopify where they pay to play per Shopify plus customer integration and certain other related revenue with a rev share agreement which btw is not in cost of revenue but in SG&A and Shopify is a big investor. These things usually lead to a discounted multiple eventually as genuine m&a is kind of problematic. And barring total greenfield success outside the Shopify ecosystem you likely end up branded a Shopify plus feature company at some point.

So, you would think maybe this IPO would have had a rough go, but memories are clearly short. My guess is this will be down 50% in less than 12 months. It's almost stupid at this point when you look at the value end of SaaS that anyone would buy this here. Maybe Sendgrid, which has sucked at front end automation, can now have an AI launch a clone of Klaviyo and call it Klepto for me. Of course IPO's tend to be volatile in the early window so I'll be keeping an eye on this for now. I'd frankly rather own Braze over this any day of the week.

Value SaaS Hangover Part 6

Kind of fitting I finally got excited about value SaaS action demonstrating investors are actually thinking like owners on some of these again right before another dump. Twilio, Zoom, Docusign obviously are the names that stand out here as I do believe some of the other underperformers are just crappy businesses.

Docusign at 3x EV/Sales with 35% cash flow margins is one where you now start to wonder whether a strategic deal has to happen. The stock is now worth less than Dropbox and it actually has a legit enterprise biz. Also, this mgmt team seems to be doing a decent job guiding to zero billings growth and delivering 10% and 11% against very clear headwinds for the biz. Ie they clearly been sandbagging it and will not be calling a covid hangover bottom for you. My checks also have been favorable on them leaning more on partners over direct and that really there isn't much to complain about with the business beyond it's Covid hangover. Same pretty much goes for Zoom though my sense is Docusign has more greenfield growth ahead. At some point these stocks will work isn't exactly a trading strategy, but when you have such tight valuation bands on the low end this is a sound longer-term investment strategy. And unlike Zoom I think the PE possibility for Docusign at these levels is impossible to ignore.

Vicor Questions

I have gotten some questions from folks short the name on why it keeps falling etc, and whether I'm going to do a public follow up. I'll say the cat is pretty much out of the bag on this one, and that for now I think saying nothing is the way to go. At this juncture, I know pretty much precisely what's going on at each notable XPU/GPU player power wise both in terms of the solution and the supplier as well as at the top three hyperscalers. The easiest way to frame it is this market had one player and it now has five. I am happy to discuss the name privately with anyone following the space or involved in the short.

If your short AMBA, this is interesting...

NFT AUTOPSY

Good analysis of the market or really more like what little is left of it..