An overlooked AI pick
Jamie Louko (Riskified): Riskified has been beaten down -- like many other companies in the e-commerce space -- 84% since coming public in late 2021. However, there’s reason to believe this artificial intelligence company (AI) could be a bargain at these prices. The company helps e-commerce businesses detect and prevent fraudulent transactions, with AI and machine learning as the driving forces of its determinations.
Riskified’s solutions have been quite valuable to customers. In a study by the company, its ten largest customers saw an average 39% decrease in operating expenses due to fewer goods lost to fraudulent transactions. Additionally, customers also saw an 8% rise in revenue from transactions that were thought to be fake but were actually authentic. With this incredible value proposition, it should be no surprise that Riskified has seen less than 2% annual customer churn since 2019.
The company facilitated $22.7 billion in gross merchandise volume in Q1, which helped the business generate over $58.8 million in revenue over the same period. The company burned $10 million in free cash flow in Q1, which is concerning considering activity could potentially slow over the coming year as consumers make fewer e-commerce purchases due to a potential recession. However, Riskified’s balance sheet is robust: It has over $500 million in cash and securities with no debt.
Assuming the company’s cash burn rate remains flat, it can subsidize 50 quarters of free cash flow burn with the cash it has on hand. Therefore, Riskified could still be operational after a recession and continue growing.
That said, investors aren’t valuing it that way: The company’s current market cap is $693 million, but its enterprise value is only $173 million. At this price, investors anticipate barely any success from Riskified, which could be overly pessimistic. Given its value proposition to its customers, the business could perform much better than Wall Street thinks right now, and over the long-term, Riskified has the potential to see stellar results on the other side of a recession.
