What happened
Shares of Riskified (RSKD +1.68%) crashed down 17.2% in December, according to data provided by S&P Global Market Intelligence. And January hasn't started any better considering it's already down 13% year to date as of this writing. And the stock is now down a cringeworthy 81% from its all-time high just a few months ago. For those keeping score at home, that's ouch, ouch, and more ouch.
Image source: Getty Images.
So what
Let's talk about what happened on Dec. 10. That day, Goldman Sachs analyst Will Nance started covering Riskified stock and recommended investors sell it, according to The Fly. Nance foresees macroeconomic issues challenging revenue growth and worsening profit margins as Riskified expands its product offering. For these reasons, Nance gave it a price target of just $9 per share, 57% below its July initial public offering (IPO) price of $21 per share.
Other than this note from Nance, things were quiet for Riskified in December.
Now what
The quiet gives us a chance to weight the merits of the bear arguments against Riskified. Both of Nance's macroeconomic concerns -- regulatory changes in Europe and supply-chain constraints -- were addressed in the conference call to discuss financial results for the third quarter of 2021.
The regulatory issue in Europe is called PSD2, and it's for payment security. Riskified management acknowledges that it's already seen a decline in e-commerce volume as a result of PSD2's implementation, and it expects this reality to continue in the first half of 2022.
However, keep in mind that 75% of Riskified's billings in 2020 came from U.S. companies. Therefore, while the strain on European e-commerce is real, Riskified's business is more heavily concentrated in the U.S., which should limit the negative impact on the company. Moreover, one of Riskified's newer products -- PSD2 Optimize -- is specifically designed to help European companies navigate these regulatory changes. So perhaps it could wind up being a net positive if its customers sign up for the additional product.
Regarding supply-chain concerns, consider that Wayfair and Macy's are two of Riskified's biggest customers, and both acknowledged challenges in their recent quarterly reports. However, neither company painted an overly bleak picture. Wayfair CEO Niraj Shah said, "We feel reasonably well positioned in the holiday and have built our promotional calendar to ensure adequate supply." And Macy's CEO Jeff Gennette said, "We don't expect to be materially impacted by supply chain issues during the critical holiday shopping season."
In short, the problem with the supply chain is real. But maybe concerns are a little overdone at this point.
The global e-commerce space is a multitrillion-dollar opportunity, and Riskified offers a core product that helps its customers increase revenue while reducing fraud-related expenses. And if it fails, Riskified pays for it. This clear value proposition to customers could boost its long-term adoption. There are legitimate questions as to whether its software is up to the task. But its market capitalization is currently just north of $1 billion, and it has over $500 million in cash. To me, this puts the odds in investors' favor today and makes Riskified worth a small position in a diversified portfolio.
