2023-09-29 14:13:46 ET
Summary
- Riskified Ltd. provides an e-commerce risk management platform to reduce fraud and improve consumer experiences.
- The company has seen revenue growth but continues to produce high operating losses.
- With lowered consumer confidence, I'm cautious about the firm's prospects.
- I remain Neutral [Hold] for Riskified Ltd. shares at this time.
A Quick Take On Riskified
Riskified Ltd. ( RSKD ) provides an e-commerce risk management platform to reduce fraud for merchants and improve consumer experiences.
I previously wrote about RSKD with a Hold outlook.
The firm continues to produce revenue growth, but operating losses remain high. Notwithstanding a recent Board authorization to repurchase shares, I'm cautious about Riskified Ltd. due to lowered consumer confidence trends.
I remain Neutral [Hold] on RSKD for the near term.
Riskified Overview And Market
Tel Aviv, Israel-based Riskified has developed a platform that aggregates data from e-commerce merchants to increase approval rates for online orders while reducing the risk of payment fraud.
The company is headed by co-founder and CEO Eido Gal, who was formerly an analyst at BillGuard and at PayPal.
The company's main service offerings include:
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Chargeback Guarantee.
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Policy Protect.
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Deco.
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Account Secure.
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PSD2 Optimize.
The firm seeks customers through a direct sales approach and pursues a 'land and expand' strategy for its offerings with each customer.
RSKD aims to secure enterprise-sized merchants with a minimum of $75 million in online sales per year.
According to a 2023 market research report by Grand View Research, the worldwide market for e-commerce fraud detection and prevention market was estimated at $25.7 billion in 2022 and is forecast to reach $93.9 billion by 2030.
This represents a forecast CAGR of 17.6% from 2023 to 2030.
The main drivers for this expected growth are the growing penetration of the Internet combined with broader smartphone usage worldwide and a wider set of threat vectors for increasingly sophisticated fraud entities.
Customers are demanding the best online shopping experience with seamless integration to a growing list of services, which increases complexity and the chance for fraudulent actors.
A growing number of e-tailers is expected to produce increasing demand, as are emerging economies such as India and Indonesia, among others.
The chart below shows the forecasted growth trajectory for the U.S. fraud detection and prevention market through 2030 by customer organization type:
Grand View Research
Major competitive or other industry participants by type include
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Signifyd.
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ClearSale.
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Sift.
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Kount.
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Forter.
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NICE Actimize.
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LexisNexis Risk Solutions.
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Fraud Barrier.
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Interceptas.
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Fraud.net.
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BehavioSec.
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Others.
Riskified's Recent Financial Trends
Total revenue by quarter has continued its upward trend; Operating losses have been reduced in recent quarters but remain substantial, as the chart shows here:
Seeking Alpha
Gross profit margin by quarter has remained relatively flat; Selling and G&A expenses as a percentage of total revenue by quarter have dropped materially in recent quarters:
Seeking Alpha
Earnings per share (Diluted) have remained materially negative, as the chart shows here:
Seeking Alpha
(All data in the above charts is GAAP).
In the past 12 months, RSKD's stock price has risen 11.91% vs. that of the iShares Expanded Technology-Software ETF's ( IGV ) rise of 31.7%:
Seeking Alpha
For balance sheet results, the firm ended the quarter with $473.8 million in cash, equivalents and short-term investments and no debt.
Over the trailing twelve months, free cash used was ($14.9 million), during which capital expenditures were $3.4 million. The company paid $63.1 million in stock-based compensation ("SBC") in the last four quarters.
Valuation And Other Metrics For Riskified
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Enterprise Value / Sales | 1.1 |
Enterprise Value / EBITDA | NM |
Price / Sales | 2.6 |
Revenue Growth Rate | 17.8% |
Net Income Margin | -25.4% |
EBITDA % | -29.6% |
Market Capitalization | $759,000,000 |
Enterprise Value | $320,110,000 |
Operating Cash Flow | -$11,520,000 |
Earnings Per Share (Fully Diluted) | -$0.42 |
Free Cash Flow Per Share | -$0.09 |
(Source - Seeking Alpha)
RSKD's most recent unadjusted Rule of 40 calculation was negative (11.8%) as of Q2 2022's results , so the firm has improved over Q4 2022 but still has a long way to go in this regard, per the table below:
Rule of 40 Performance (Unadjusted) | Q4 2022 | Q2 2023 |
Revenue Growth % | 14.0% | 17.8% |
EBITDA % | -40.2% | -29.6% |
Total | -26.2% | -11.8% |
(Source - Seeking Alpha)
Sentiment Analysis
The chart below shows the frequency of key terms in the most recent management earnings conference call with analysts:
Seeking Alpha
The chart shows relatively few mentions of macro conditions or challenges.
Analysts asked leadership about the sources of growth by industry, why there was a decrease in the take rate and what regions represent the most growth opportunities.
Management responded that it is seeing demand growth from industries outside of travel, including food and home goods, although high-end fashion and sneakers are showing signs of weakness.
The take rate decreased due to normal fluctuations in mix revenue; the APAC region has produced strong growth, although management views all major global regions as having opportunities.
Commentary On Riskified
In its last earnings call (Source - Seeking Alpha ), covering Q2 2023's results, management's prepared remarks highlighted sales team quota beats and an increase in its "rolling pipeline that is now stronger and more robust than it was at the beginning of the year."
The Board also authorized the repurchase of up to $75 million worth of company shares.
Management said it would reduce share-based compensation to lower shareholder dilution over time.
Total revenue for Q2 2023 rose by 21.5% year-over-year, while gross profit margin fell by 0.3%.
The annual dollar revenue retention rate for 2022 was 99%, indicating light churn and moderate sales and marketing efficiency.
Selling and G&A expenses as a percentage of revenue decreased by an impressive 20.1% YoY and operating losses were reduced by 33% but remained elevated with significant progress toward breakeven still ahead.
The company's financial position is strong, with substantial liquidity, no debt, and a manageable amount of free cash burn.
RSKD's Rule of 40 performance has remained materially negative but at least has shown some improvement.
Looking ahead, 2023 full-year topline revenue growth is expected to be around 15.2%.
If achieved, this would represent a slight increase in revenue growth rate versus 2022's growth rate of 14% over 2021.
In the past twelve months, the firm's EV/Sales valuation multiple has increased by 25%, net-net, as the chart from Seeking Alpha shows below:
Seeking Alpha
Changes in its EV/Sales valuation multiple have contributed strongly to the stock's trajectory over the past year.
A potential upside catalyst to the stock could include an improving online sales environment.
However, consumer confidence is dropping, as the Conference Board's most recent gauge of U.S. consumer confidence fell to 103.0 as of September 26, 2023, continuing its downward trend in recent months, as the chart shows below:
With an uncertain macroeconomic backdrop and the company needing to make more progress toward operating breakeven, I'm cautious about RSKD despite the recent stock buyback authorization.
I remain Neutral [Hold] on Riskified Ltd. shares for the near term.
For further details see:
Riskified To Buy Back Shares But Operating Losses Remain Heavy