We came across a bullish thesis on Riskified Ltd. (RSKD) on Twitter by northeasternsvf. In this article, we will summarize the bulls’ thesis on RSKD. Riskified Ltd. (RSKD)’s share was trading at $5.16 as of Feb 27th.
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Riskified is a leading e-commerce risk management platform that leverages real-time machine learning to help merchants combat fraud while maximizing sales. Its flagship Chargeback Guarantee product, which accounts for 90% of revenue, ensures that Riskified reimburses merchants for fraudulent transactions it approves, providing both security and higher approval rates. This model allows merchants to increase sales and reduce chargeback costs, with Riskified charging a risk-adjusted percentage of their gross merchandise volume (GMV) based on transaction type and merchant profile. The company also offers high-margin complementary solutions such as account protection and policy abuse prevention, contributing the remaining 10% of revenue. Riskified’s capital-light business model has resulted in a robust balance sheet, with cash exceeding 40% of its market cap, positioning it well for strategic initiatives.
The market has mispriced Riskified’s business due to a misunderstanding of its cost-to-benefit (CTB) dynamics and cross-sell potential. CTB represents roughly 80% of the company’s cost of sales, and as long-standing customer cohorts mature, their CTB ratio declines, driving margin expansion. Despite this trend, consensus estimates for FY25 and FY26 have slashed gross margin expectations due to macro concerns, failing to account for RSKD’s ability to improve margins as client relationships deepen. Additionally, the company’s recently launched products—Policy Protect and Dispute Resolve—are inherently higher-margin offerings, and cross-selling them could lift annual contract value (ACV) by 10-30%. Management expects attach rates to rise from 15% currently to 30-40%, which could add another 50-100 basis points to overall gross margins. As these new revenue streams scale, Riskified’s margin profile is likely to improve significantly, countering bearish consensus projections.
Another overlooked catalyst is Riskified’s aggressive share repurchase strategy, which aims to offset dilution and enhance shareholder value. With more than $225 million allocated to buybacks since late 2023, the company has already repurchased 8.6 million shares in Q3 2024 alone. Management has committed to reducing outstanding shares by 10-15% annually, effectively counteracting the 4-5% dilution expected from stock-based compensation. Despite conservative sell-side estimates forecasting only a 5% reduction in share count through FY26, buybacks should meaningfully impact the stock’s valuation over the next two years. Even without factoring in additional repurchases, Riskified’s current valuation presents a compelling upside of 40% by 2026, making it an attractive investment at current levels. If management successfully curtails dilution and improves margins through cross-selling, the company’s risk-reward profile becomes even more favorable.
Riskified Ltd. (RSKD) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 23 hedge fund portfolios held RSKD at the end of the third quarter which was 18 in the previous quarter. While we acknowledge the risk and potential of RSKD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RSKD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.