What happened
Shares of fraud-detection software company Riskified (RSKD 2.56%) ran higher on Wednesday after the company reported financial results for the first quarter of 2023. As of 10:30 a.m. ET, Riskified stock was up about 13%.
So what
Riskified partners with merchants to get more good transactions approved while lowering fraudulent ones. It takes a cut of transactions, which makes gross merchandise volume (the dollar value of sales through the system) a good metric to track. In Q1, Riskified's gross merchandise volume was up 20% year over year, leading to a 17% jump in revenue.
NYSE: RSKD
Key Data Points
Riskified has incentive to approve transactions for its partners, since its revenue is tied to this. However, the company pays partners back for fraudulent transactions, which lowers its gross profit. Therefore, it also has incentive to decline transactions as needed. And this is why tracking the company's gross margin is also important.
In Q1, Riskified's gross margin was 52%, holding steady from the prior-year period.
Like most companies, Riskified's management is trying to exercise more control on operating expenses. And in Q1, it lowered expenses, which resulted in improving its net loss from $33 million last year to about $18 million this year.
Both revenue and profits were essentially in line with expectations for Riskified. Which is why the market's positive reaction today is likely more attributable to the company's forward guidance.
Now what
For 2023, Riskified still expects to generate revenue of $297 million to $303 million. However, management raised its guidance for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Whereas it was expecting a full-year adjusted EBITDA loss of $22 million to $27 million, it now expects a smaller adjusted EBITDA loss of $12 million to $17 million.
In my opinion, things are OK for Riskified right now, not necessarily great. At the midpoint of guidance, management expects about 15% revenue growth in 2023, a small uptick from 14% growth in 2022. Its gross margin is holding steady. And its losses are narrowing but it's still losing money nonetheless.
I'm personally comfortable holding my Riskified shares for now. But I'd like to see faster growth, gross margin improvement, or a profit in future quarters to feel better about its long-term potential.
