20-F: Riskified Reports Fiscal Year 2023 Results, Demonstrates Growth and Focus on Profitability

Riskified Ltd. reports a 14% increase in revenue for fiscal year 2023, alongside ongoing efforts to manage expenses and improve profitability.

Summary

• Riskified Ltd. released its Form 20-F filing for the fiscal year ended December 31, 2023.
• The company's revenue increased by 14% from $261.2 million in 2022 to $297.6 million in 2023.
• Riskified experienced a net loss of $59.0 million in 2023, compared to a net loss of $104.7 million in 2022.
• As of December 31, 2023, Riskified had 128,738,857 Class A ordinary shares and 49,814,864 Class B ordinary shares outstanding.
• The company's three largest merchants accounted for 28% of its revenues in 2023.
• Gross Merchandise Volume (GMV) grew by 17% to $123.1 billion in 2023.
• The Net Dollar Retention Rate for 2023 was 105%.
• The company's Board of Directors approved a share repurchase program for up to $75 million of Class A ordinary shares.
• The company is subject to various laws and regulations, including those related to data privacy, security, and anti-corruption.
• The company is incorporated in Israel and faces potential risks related to political, economic, and military conditions in the region.

Sentiment

Score: 7

Explanation: The document presents a mixed sentiment. While revenue growth is positive, the company still reports a net loss. The focus on expense management and the share repurchase program are viewed favorably, but the various risk factors temper the overall outlook.

Positives

• Revenue increased by 14% year-over-year.
• Net loss decreased significantly compared to the previous year.
• GMV grew by 17% year-over-year.
• The Net Dollar Retention Rate is above 100% indicating expansion with existing customers.
• The company has a share repurchase program in place.
• The company is actively managing its CTB Ratio and gross profit margin on an annual basis.

Negatives

• The company experienced a net loss of $59.0 million in 2023.
• The company is dependent on a few significant merchants for a substantial portion of its revenues.
• The company operates in a highly competitive industry.
• The company is exposed to fluctuations in currency exchange rates.
• The company is subject to political, legal, and economic risks in China.
• The company is subject to increasing scrutiny of, and evolving expectations for, sustainability and environmental, social, and governance (ESG) initiatives.

Risks

• Failure to manage growth effectively could adversely affect revenues, results of operations, and financial condition.
• Changes in laws and regulations related to payment methods or the emergence of alternative payment products could reduce demand for Riskified's products.
• Inability to achieve and maintain profitability could impact the company's long-term viability.
• Failure to attract new merchants, retain existing merchants, or increase sales to existing merchants could adversely affect the business.
• Macroeconomic conditions and the financial performance of merchants can significantly impact Riskified's revenue.
• Inability to improve machine learning models or errors in these models could lead to higher chargebacks and impact financial performance.
• Security breaches could result in liability, reputational damage, and loss of merchants.
• Lengthy sales cycles with large enterprises make it difficult to predict future revenue.
• Seasonal fluctuations in revenues could affect operating results.
• Competition in the industry could lead to price reductions, lower transaction volumes, and loss of market share.
• The loss of a significant merchant would materially and negatively affect the business.
• Inability to develop enhancements to products, increase adoption, and introduce new products could adversely affect the business.
• The loss of key personnel, including co-founders, could materially and adversely affect the company.
• Inability to attract and retain qualified personnel could impact operations and growth.
• Changes in prices and pricing structure may negatively impact the business.
• Exposure to fluctuations in currency exchange rates could negatively affect operating results.
• The company may need additional capital, and there is no guarantee it will be available on favorable terms.
• Reliance on third-party providers of cloud-based infrastructure poses risks of service disruptions.
• Failure to protect intellectual property rights could impair the ability to protect proprietary technology and brand.
• Interruptions or performance problems with technology and infrastructure may adversely affect revenues.
• Proprietary machine learning models rely in part on the use of merchants data and other third-party data, and if we lose the ability to use such data, if our merchants fail to collect such data, if there are disruptions in our ability to access such data, or if such data contain inaccuracies, our business could be adversely affected.
• Compliance with continuously evolving privacy laws and regulations, including laws and regulations governing processing of personal information, including payment card data, and our actual or perceived failure to comply with such laws and regulations may result in significant liability, negative publicity, and/or erosion of trust and could have an adverse effect on our revenues, our results of operations and financial condition.
• As the regulatory framework for machine learning technology and artificial intelligence evolves, including with respect to unintentional bias and discrimination, our business, financial condition, and results of operations may be adversely affected.
• Our implementation and use of artificial intelligence and machine learning technologies may not be successful, which may impair our ability to compete effectively, result in reputational harm and have an adverse effect on our business.
• Our use of open-source software could negatively affect our ability to sell our products and subject us to possible litigation.
• Our business depends on the strength of our brand, and if we are not able to maintain and enhance our brand, we may be unable to sell our products, which could have a material adverse effect on our business, financial condition and results of operations.
• Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute shareholder value, and adversely affect our business, financial condition and results of operations.
• We may be sued by third parties for alleged infringement, misappropriation or other violation of their intellectual property rights.
• Our failure to comply with the anti-corruption, trade compliance, anti-money laundering and terror finance and economic sanctions laws and regulations of the United States and applicable international jurisdictions could materially adversely affect our reputation and results of operations.
• While we may not be able to enforce non-compete agreements we enter into with employees in certain locations, our current and future competition may attempt to enforce similar agreements with individuals we recruit or attempt to recruit.
• If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
• If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our business, financial condition and results of operations may be adversely affected.
• We conduct business in China, which exposes us to political, legal, and economic risks, and we may be subject to negative publicity in China, which could damage our reputation and have an adverse effect on our revenues, our results of operations and financial condition.
• Increasing scrutiny of, and evolving expectations for, sustainability and environmental, social, and governance (ESG) initiatives could increase our costs, harm our reputation, or otherwise adversely impact our business.
• Changes in tax laws or regulations that we are subject to in various tax jurisdictions or disagreements with tax authorities over the application of the current tax laws or regulations may have an adverse effect on us or our merchants and could increase our costs and harm our business.
• Our results of operations may be harmed if we are required to collect sales or other similar taxes for the sale of our products in jurisdictions where we have not historically done so.
• The enactment of legislation implementing changes in taxation of international business activities, the adoption of other corporate tax reform policies, or changes in tax legislation or policies could impact our future financial position and results of operations.
• Changes in, or adverse applications of, insurance laws or regulations in the jurisdictions in which we operate could subject our business to additional regulation, which could impact our future financial position and results of operations.
• The share price of our Class A ordinary shares has been and may continue to be volatile.
• We cannot predict the impact our dual class structure may have on the market price of our Class A ordinary shares.
• The dual class structure of our ordinary shares has the effect of concentrating voting power with our management and other pre-IPO shareholders, which will limit your ability to influence the outcome of important transactions, including a change in control.
• An active trading market for our Class A ordinary shares may not be sustained to provide adequate liquidity.
• If we do not meet the expectations of securities analysts, if they do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our Class A ordinary shares, the price of our Class A ordinary shares could decline.
• We qualify as an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A ordinary shares less attractive to investors because we may rely on these reduced disclosure requirements.
• We are a foreign private issuer, and, as a result, we are not subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
• We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
• As we are a foreign private issuer and intend to follow certain home country corporate governance practices, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all corporate governance rules of the New York Stock Exchange.
• The market price of our Class A ordinary shares could be negatively affected by future issuances and sales of our Class A ordinary shares.
• Provisions of Israeli law and our amended and restated articles of association may delay, prevent, or make undesirable an acquisition of all or a significant portion of our shares or assets.
• We do not expect to pay any dividends in the foreseeable future.
• We cannot guarantee that our share repurchase program will be utilized to the full value approved or that it will enhance long-term shareholder value. Repurchases we consummate could increase the volatility of the price of our Class A ordinary shares and could have a negative impact on the liquidity of our Class A ordinary shares.
• We will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
• Our amended and restated articles of association provide that, unless we consent to an alternative forum, the federal district courts of the United States shall be the exclusive forum for resolution of any complaint asserting a cause of action arising under the Securities Act, and the competent courts of Tel Aviv, Israel, shall be the exclusive forum for resolution of substantially all disputes between the Company and its shareholders under the Companies Law and the Israeli Securities Law, which could limit our shareholders ability to choose the judicial forum for disputes with us, our directors, shareholders, or other employees.
• There can be no assurance that we will not be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to United States Holders of our Class A ordinary shares.
• If a United States person is treated as owning 10% or more of our shares, such holder may be subject to adverse U.S. federal income tax consequences.
• Conditions in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and elsewhere in the region, and Israels war against them, may adversely affect our revenues, our results of operations and our financial condition.
• Due to competition for highly skilled personnel in Israel, we may fail to attract, recruit, retain and develop qualified employees, which could materially and adversely impact our business, financial condition and results of operations.
• It may be difficult to enforce a U.S. judgment against us, our officers, and our directors named in this Annual Report in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors.
• Your rights and responsibilities as our shareholder will be governed by Israeli law, which may differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.

Future Outlook

The company anticipates that its available funds and cash flow from operations will be sufficient to meet its cash needs for the foreseeable future, but may require additional financing.

Industry Context

The announcement reflects the ongoing growth in the ecommerce sector and the increasing importance of fraud prevention and risk management solutions. The company's focus on enterprise merchants aligns with the trend of larger online retailers seeking advanced technologies to optimize their operations and customer experiences.

Comparison to Industry Standards

• The company competes with various fraud detection and prevention companies, including those offering risk scoring with non-guaranteed decisions at lower price points.
• The company's ability to guarantee chargebacks differentiates it from some competitors.
• The company's focus on enterprise merchants aligns with the industry trend of larger retailers seeking comprehensive risk management solutions.
• The company's Net Dollar Retention Rate of 105% indicates strong customer loyalty and expansion, which is a key metric for SaaS companies.

Management Changes

Legal Proceedings

• A putative securities class action complaint filed in May 2022 was dismissed with prejudice on June 2, 2023.

Related Party Transactions

• The company has entered into agreements with directors and executive officers exculpating them from liability and undertaking to indemnify them to the fullest extent permitted by law.
• The company issued a warrant to Wayfair LLC in conjunction with a SaaS Agreement.

Stakeholder Impact

• Shareholders may be impacted by the share repurchase program and the company's focus on profitability.
• Employees may be impacted by the reduction in force and the company's efforts to manage expenses.
• Merchants may benefit from the company's continued investment in its ecommerce risk intelligence platform.
• Customers may benefit from improved online shopping experiences as a result of the company's products.

Next Steps

• The company will continue to focus on expense discipline, capital allocation initiatives, and a path to profitability.
• The company will continue to enhance its existing products and may develop and introduce new products through internal research and development.
• The company may selectively pursue acquisitions.
• The company will continue to monitor macroeconomic trends and events that may have a material impact on its business.
• The company may file extension requests with the Israeli Court on an ongoing basis as required to continue the share repurchase program.

Key Dates

Keywords

Riskified, ecommerce, fraud prevention, machine learning, financial results, GMV, Net Dollar Retention Rate, chargebacks, risk management, financial statements, 20-F, investors