Riskified (RSKD -0.99%) has carved out a lucrative business over the past decade, basically using its AI engine to reduce and mitigate fraud for e-commerce companies. In this clip from "The Rank" on Motley Fool Live, recorded on March 28, Fool.com contributors Travis Hoium and Jamie Louko explain that even though the stock has been beaten down recently, the company is well-positioned to continue gaining customers and continue growing.
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Travis Hoium: One of the things that I have a hard time wrapping my head around is what the opportunities in this space is? Because if you think about e-commerce, it's like there's this curve of players. Amazon (AMZN -1.65%) is on the very end with a massive market share. It seems like this would be something that would be valuable for the smaller players.
The problem is, if you're trying to aggregate a ton of small players, you have the acquisition cost of acquiring them, and then you have to also get your risk profile right, which it seems like they didn't do last quarter. I just wonder, once you get to a certain size, if you're an e-commerce company, you're going to say, well, we're paying for this and we're giving you margin. Why aren't we just taking that margin ourselves?
It's like big companies typically have their own insurance pool and then they have somebody else do the back-end stuff, but they are taking the risks themselves because it's like, why would we give you a margin for that? That's the question I have with it is, what's the opportunity there when these bigger companies, it seems like, would leave as soon as they get to a certain scale.
Then you get something like crypto. I don't understand what value they will be adding in crypto because those transactions are happening and are validated immediately. Yeah, I don't know. I have more questions. I don't remember what I ranked this, but it was not very high because I just don't see the massive opportunity for this one.
Jamie Louko: Yeah, that's definitely a risk that they do have. SMB is moving up and expanding into big players. I do want to note that the company, their churn rate was just 1%. While this is a risk, It's not showing up yet, at least in their financials. Yeah, it's very appealing. You would think that a company in the SMB mid-market space would have higher churn, but they really don't.
But really, if a small business is starting with Riskified and they're growing with Riskified. Riskified's take rate is very small. I can't remember the exact detail but I think it's like under 0.5%, so it's very small per transaction. But as they continue to grow and mature with Riskified, the thought of leaving Riskified and developing that AI in-house, which could potentially be very expensive, and on the same token, they'd be starting with no data or they'd be starting with very little data.
They would have to develop that and build it on their own, which could be very expensive and at least in the short to medium-term, actually hurt their business. Riskified did a study that said that they found a 39% decrease in operating expenses while they increased their customers' revenue by 9% for their top 10 customers.
It's clearly a pretty valuable resource to their customers. If they're deciding about starting from scratch and building this on their own, well, it might be a long-term benefit, the short-term or even the medium-term would definitely hurt for an e-commerce business with the benefits that it provides for such a small take rate.
