Despite a big drop in stock price since its IPO in 2021, Riskified's (RSKD -1.84%) recent earnings show an encouraging uptick. In this video clip from "The Rank" on Motley Fool Live, recorded on March 28, contributor Jamie Louko looks at the company's gross margins and growing customer base as signs of a significant rebound.

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Jamie Louko: Yeah, Riskified is a really cool business. It came public late 2021 and since then, I think it came public at around $24 a share, something like that. It has been trading around $6, so it has been absolutely hammered recently. Riskified provides an AI engine to e-commerce companies and basically, the sole goal of this AI is to reduce and mitigate fraud for e-commerce businesses.

Really what they want to do is spot those fraudulent orders that are coming through their SMB e-commerce customers and get rid of them without turning down real customers. That's a big problem that SMB e-commerce businesses have because when they ask for more information about a potential fraudulent order, they are usually slowing down the e-commerce experience for those customers, and if they're real customers, if they're real people like you and I buying something on the site that can really deteriorate the consumer experience.

So it's a real problem easily finding those fraudulent orders and not messing with the consumer experience and Riskified's AI engine is basically trying to do that. What's really special about their company is something called a chargeback guarantee, and it basically says to the consumer, its agreement between Riskified and e-commerce business that says, "Hey, if we permit a fraudulent order on your platform, and it is a fraudulent order, but we say it's real then we will cover the cost of your goods that you lost."

So that makes the value proposition for e-commerce businesses very big. They're basically taking on no risk for these fraudulent orders. It's really valuable for e-commerce companies to use Riskified. The problem is, as the AI is inaccurate more often, that means it has to pay out more in chargebacks, which is fully represented in its gross margin. The key for this business is to watch its gross margin continue increasing because that means they're paying less in chargebacks and their AI is better.

What has happened in their third fiscal quarter was their gross margin absolutely tanked. It went from 52% in Q3, 2020 to 46% in Q3, 2021. That basically signaled our AI was wrong a lot and that was really bad because a lot of investors just said, "Hey, this AI wasn't all it was cracked up to be, the business is flawed." Management said, "Hey, that's not 100% right." We're entering some new markets, namely, the crypto market. But that really tanked the business.

In the fourth quarter, it jumped back up. Their gross margins were 53%. They basically just bounced right back. Granted a year-ago period was 58% margin. It is lower than the year-ago period. But the company has yet to bounce back even though its gross margin did. That's kind of why I see it as a 10X opportunity right now.

It's like, hey, the AI is not as bad as people think it is. It's still doing really well back to normalized gross rates. Yet, the stock really hasn't jumped up that much since it reported fourth-quarter earnings. With the company having just a 1% market share in the global e-commerce space, they're really poised to continue growing, continue gaining customers in the SMB e-commerce market.