What happened
Shares of e-commerce technology company Riskified (RSKD 3.19%) popped on Tuesday after reporting financial results for the second quarter of 2023. The company's Q2 revenue jumped 21% year over year, thanks to growth in most of the e-commerce categories in which it does business.
Importantly, Riskified's gross profit margin was 51% in Q2 -- stable from the prior-year quarter. The company's revenue growth and profit margin stability are big reasons why Riskified stock was up 8% as of 10:30 a.m. ET. Shares had been up as much as 13% earlier in the trading session.
So what
Whereas Riskified generated Q2 revenue of $72.8 million, the analyst community expected revenue closer to $71 million. This modest outperformance of expectations was enough to cause the stock to jump, at least today.
Moreover, Riskified's gross margin is a good proxy for the effectiveness of its software, which aims to detect fraud. And when it fails, its gross margin takes a hit.
In Q2, merchandise volume flowing through Riskified's technology was up 22% year over year. But even though the company is handling more volume, the software seems to be detecting the same percentage of fraudulent transactions, as evidenced by the gross margin holding steady at 51%. And that's encouraging.
Now what
Investors are right to feel encouraged. Riskified continues to grow and is operating with minimal losses. Moreover, with no debt and $480 million in cash, cash equivalents, short-term deposits, and accrued interest, the company's balance sheet is in terrific shape.
That said, Riskified's technology is based on artificial intelligence (AI). Good AI should improve with more data.
But Riskified doesn't seem to be getting better with time -- it's merely performing comparably to the past. It may just be a matter of time before the company's tech makes a jump forward. Either way, this remains an area for investors to focus on for now.
