After introducing Riskified (RSKD) to the board last week https://discussion.fool.com/introducing-riskified-rskd-34921610… I wanted to add a bit more color now that the Q2 results are out.
Is RSKD a hypergrowth company?
First, I wanted to address some concerns about Riskified not being a hypergrowth company (50+%). Riskified charges clients a fee only when they run their transactions through them. Clients do not have to run everything through Riskified. For instance, clients can run transactions that may come from a questionable geographical location. Or from newly added geos due to expansion or market testing. Or even for expensive items. Or whatever the client decides to do with the Riskified platform.
Riskified — although a SaaS company — does not charge a flat fee per month/year as some other competitors do. So, Riskified grows as their clients grow depending on the deal they made as they do not charge the same rate on all clients. The more GMV Riskified processes the more money it makes. GMV is a key performance indicator. Since there’s a lot of seasonality in Riskified’s customers especially around Q4, Riskified experiences a lot of seasonality too.
In their words: Revenue seasonality: Our revenue is correlated with the level of GMV that our merchants generate through our eCommerce risk management platform. Our merchants typically generate the most revenue in the calendar fourth quarter, which includes Black Friday, Cyber Monday, the holiday season, and other peak events included in the eCommerce calendar, such as Chinese Singles’ Day and Thanksgiving. Our gross profit margin follows a similar trend.
What this means for us investors, is that it is somewhat difficult to predict what the revenues would be in a short period like a quarter and even more difficult to assess the company’s results simply from Q to Q. What is important here, I would say, is to see the overall growth of the entire year. Riskified grew revenues from FY18 to FY19 at about 75%. It was during 2020 that had headwinds and grew only 30% because some of Riskified’s customers were in the flights and tickets business. Since then, 2021Q1 (54%) and 2021Q2 (47%) show reacceleration.
Of course, it started off a smaller base back in 2018, but we need to remember that true AI and ML take time to train and improve the models. Similarly, Upstart was in the same stage last year when we thought that it was a turnaround stock. I’m not saying RSKD and UPST will perform the same or that they have the same potential. All I’m saying is that as long as we are seeing an improvement YoY on all metrics and at least a 50% growth then we could call it a hypergrowth company.
-First, GMV — which according to management is a key performance indicator — was $21.5 billion, up 55% YoY and 14% QoQ.
-Gross margin 60%, up from 53% previously.
-Gross profit growth of $33.3 million and up 55% YoY.
-Adjusted EBITDA of positive $1.6 million from negative $1.1 million for the 2020Q2.
-Revenue of $55.7 million (beating the consensus of $54.98 million)
-Guidance of $50-51 million for Q3 and $225 million for the FY2021. If we accept the guidance, then the FY2021 growth would be mediocre at around 35%. The question is, for Q2 they almost nailed their guidance with a slight beat as they were already into the end of the quarter when they guided. Also, Q3 ends September 30, so is there enough time for any positive surprises? Q4, even if the guidance implies 33% QoQ growth, it doesn’t add that much to the overall year. So, if we accept this guidance then Riskified is not in its hypergrowth stage as defined by this board.
What I liked from the management
-many of the world’s largest online merchants are increasingly recognizing Riskified’s machine learning solution as the new paradigm in fraud management
-we are excited for the journey ahead as we continue to benefit from several structural tailwinds that we expect to drive continued demand for our platform
-onboarded several prominent new merchants in multiple, rapidly-growing eCommerce categories, including several that Riskified has not previously served (e.g. payments platforms and crypto)
-we are excited to continue our targeted global expansion plans, with the goal of entering into several major geographies in the coming years
If management keeps executing well, Riskified can have a long runway with an ever-growing TAM. One thing to note here is that any significant slowdown along with the small float could drive the stock price down as fast as it can go up. Also, there’s an early lock-up for 20% of the available shares for employees (excluding directors or officers) this Monday, September 13.
RSKD now sits at no4 of my portfolio just below SEMR https://discussion.fool.com/semrush-semr-q2-earningsthoughts-349… which I believe can have similar returns to Sprout Social ($SPT) as introduced by JabbokRiver42 the other day https://discussion.fool.com/sprout-social-spt-34927484.aspx
Earnings Call https://ir.riskified.com/events-presentations
Q2 Results https://ir.riskified.com/news-releases/news-release-details/…
SEC Filings https://ir.riskified.com/financial-information/sec-filings