damircudic
A wise man profits more from his enemies than a fool from his friends.” – Baltasar Gracian
Today we have a small Israel-based technology company called Vulnerable Ltd. (NYSE:RSKD) into the limelight for the first time. The company came Public at the end of the IPO/SPAC madness that lasted from the second half of 2020 to the summer of 2021. Driven in large part by very accommodative Federal Reserve policy and a resultant increase in the money supply by 40% over two years, most stocks that came onto the market from this ‘vintage‘ have destroyed a lot of shareholder value. Riskified’s stock is no exception. Has equity finally dropped enough to be in the ‘bargain‘? An analysis follows below.
Alpha wanted
Company overview:
Riskified Ltd. is based in Tel Aviv, Israel. the The company has developed and offers a risk management platform that offers online merchants smooth e-commerce functions.
November company presentation
The company has a strong presence in the tickets and travel e-commerce space. Approximately 30% of Riskified’s business comes from tickets, travel and events. The stock trades at just under $6 per share and has an approximate market cap of just south of $1 billion.
November company presentation
Third quarter results:
On November 9th, Riskified released its third quarter Counting. The company posted a non-GAAP loss of one nickel per share, 11 cents above expectations. Revenue rose just over 20% year over year to just over $63 million, about $4 million above consensus. Revenue was negatively impacted 4 percent during the quarter by a strong dollar.
November company presentation
Leadership slightly increased its fiscal 2022 revenue guidance to between $257 million and $261 million. Management also reduced its guidance for fiscal year 2022 adjusted EBITDA loss to between $44 million and $47 million from a previous guidance of between $54 million and $57 million for fiscal 2022 adjusted EBITDA loss. The $10 million positive adjustment was primarily the result of a reduction in the budgeted spend base. Riskified’s Adjusted EBITDA loss also improved 33% in the third quarter compared to the third quarter of 2021. Non-GAAP gross profit margin also increased to 52% from 47% in the same period last year. Finally, free cash flow for the quarter was a negative $4 million, a 75% improvement year over year.
November company presentation
Analyst comment & balance sheet:
Opinion in the analyst community has been mixed since the third-quarter results were released, despite the company beating quarterly expectations and raising guidance. Both Credit Suisse (CS) ($9 target) and Barclays (BCS) ($7 target) are sticking with stock purchases. KeyBanc downgraded RSKD to Hold, while JPMorgan (JPM) renewed its neutral rating and lowered its price target by a dollar a share to $6. Finally Goldman Sachs (GS) updated the equity from a sale at a neutral value, noting that:
The company has likely passed its “lowest” growth stage and that revenue growth is likely to accelerate in the coming year, and they expect Riskified’s EBITDA margins to increase this year, reflecting the company’s “heavy” cost control measures and decline from what an investment-heavy year 2022 was.”
However, Goldman currently has a moderate price target of $5 on RSKD. A little over two percent of the stock’s outstanding free float is currently held short. The company ended the third quarter with just over $480 million in cash and marketable securities with no long-term debt.
Verdict:
The current analyst house consensus is that Riskified will lose a little over a quarter of its stock in FY2022, even as revenue climbs to nearly $260 million in the low teens. Consensus calls for the same earnings result for fiscal 2023, even if sales grow in the high teens. It should be noted that earnings estimates for the next fiscal year vary widely, ranging from 7 cents to 66 cents of loss per share.
It’s currently hard to find good reasons to buy Riskified’s decline other than its fortress balance sheet. Revenue growth is also solid and the third quarter saw improvements in some key metrics. The company has little positive analyst reports despite solid third quarter results and it is likely that the company will remain unprofitable in the short to medium term.
Most analyst firms also assume a significant value slower in e-commerce spending in 2023, which would likely counteract Riskified. Finally, I haven’t done well with Israeli small caps over the years either, RedHill Biopharma (RDHL) be a prima facie example. As such, I have no investment recommendation for the stock until Riskified gains additional traction and is in the black on the earnings front.
When you surround an army, you leave an exit. Don’t press too hard on a desperate enemy.” – Sun Tzu, The Art of War
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