$1.74
$7.70
bear $1.74
base $3.28
bull $7.70
margin of safety $1.80
market price* $17.08
Klaviyo sells a subscription software platform that businesses, including merchants on Shopify, use to run email, text-message and WhatsApp marketing. Revenue reached $1,234 million in 2025, up 32%, and $728.6 million in the first half of 2026, up 27%. The company served over 193,000 customers at the end of 2025 (167,000 a year earlier), 3,912 of them paying over $50,000 a year (up 37%), and existing customers spent 110% of what they spent a year before (108% in 2024). Gross margin is about 75%. What the business actually earns for its owners is far smaller than its reported operating cash flow suggests. Operating cash flow was $218 million in 2025, but $162 million of that came from adding back stock-based pay, which we treat as a real cost, and roughly $40 million came from interest on the company's cash pile. After also charging the capital spending needed to maintain the business (we excluded the part of capital spending tied to revenue growth) and smoothing timing swings in working capital, owner earnings were about $16.8 million in 2025 and $14.8 million in 2024, or about 6 cents a share. We charged sales commissions as they are expensed rather than as paid, and charged bad debts as a cost. Excluding interest income, because we count the cash separately below, the operating business lost about $22.6 million in 2025 and $24.8 million in 2024. Years before 2024 are left out. In 2021 and 2022, before the IPO, operating cash flow was negative and the business was much smaller. Stock-based pay in 2023 was $340.8 million because it included a one-time catch-up charge for pre-IPO stock awards whose vesting condition was met at the September 2023 IPO. One accounting item deserves a note. In July 2022 Klaviyo signed a seven-year collaboration agreement with Shopify and paid for it partly in penny warrants for 15,743,174 shares, valued at $370.3 million. That value is written off at $52.9 million a year as a non-cash marketing expense. The warrants are exercised into shares as they vest, and we count those shares plus the 2.4 million warrants still outstanding. That dilution is the real cost, so we did not also charge the write-off against earnings. The cash side of the relationship does run through earnings: Klaviyo paid Shopify $33.2 million of revenue-share and integration fees in 2025. The first half of 2026 shows real improvement. Operating income was a $1.7 million profit in the first quarter, against a $23.8 million loss a year earlier, and the second-quarter loss narrowed to $15.0 million from $31.3 million. Using the quarterly figures available (the full quarterly cash-flow detail was not available to us, so the first-half figure is partly estimated from net income, depreciation, the Shopify write-off and capital spending), the operating business, excluding interest income, roughly broke even in the first half of 2026 against a loss of about $33 million a year earlier. Adding the second half of 2025 gives about $11.4 million over the most recent twelve months. In 2025 the operating business's loss on this measure narrowed by only about $2 million. We let the base case start at the higher $11.4 million only because two consecutive quarters of 2026 have confirmed the improvement, and we do not assume any further margin gain. Klaviyo had no borrowings at the end of 2025. It held $832.6 million of cash on June 30, 2026, after spending $333.6 million buying back its own shares in the first half of 2026. We treat about $700 million as surplus, keeping about $130 million for day-to-day needs, and spread value over about 304 million shares, which includes the 2.4 million Shopify warrants still outstanding. Shopify's separate right to buy 15.7 million more shares at $88.93 each, which runs until July 28, 2030, is far above our value and is ignored. All values are discounted at 6%. Bear case ($1.74 a share): the improvement of early 2026 does not hold, and the operating business goes back to its 2024-2025 run of losing about $23.7 million a year. One named pressure is that Shopify can raise its per-merchant integration fee each year under the agreement, up to a formula cap. With no growth credited, losses run for ten years and then stop. The business is worth about minus $174 million, there is no debt to subtract, and the roughly $700 million of surplus cash brings shareholders' value to about $528 million. Base case ($3.28 a share): the business holds the roughly $11.4 million a year it has reached and grows only with spending by existing customers, whose expansion has run at 108-110%, at 10% tapering to 3% by year ten. It does not become more profitable per dollar of revenue. By year ten it earns about $19.5 million, and that level is held because the recurring customer base persists. The business is worth about $295 million, there is no debt, and with surplus cash shareholders' value is about $998 million. Bull case ($7.70 a share): the second half of 2026 repeats the first half's roughly $34 million improvement on the year before, lifting the level to about $45 million. Growth that includes adding new customers, which grew from 167,000 to 193,000 in 2025, runs at 20% tapering to 5%, well below the 27-32% the company has recently delivered. The business earns about $114 million by year ten and is worth about $1.64 billion. With surplus cash, shareholders' value is about $2.34 billion. We left out any further widening of margins, new products and share gains beyond the bull case, because none of these is yet shown in the results. Most of the value in the bear and base cases is cash, so how that cash is spent matters: buybacks at prices above the business's worth would move value away from remaining owners. The margin-of-safety price of $1.80 is about 45% below the base case and just above the bear case. That wide margin reflects a business whose owner earnings are still close to zero once stock-based pay is counted, and a cash balance that management has shown it will spend. Our view would be wrong if Klaviyo keeps growing revenue at 25% or more while stock-based pay and sales spending keep falling as a share of revenue. Four or more quarters of that would justify a higher earnings level. Founders Andrew Bialecki and Ed Hallen hold 68.9% of the ten-vote Series B shares, and Series B holders control a majority of the vote until the share classes merge seven years after the IPO.