E-commerce And AI Will Redefine Fraud Prevention

Key Takeaways

• Accelerating product adoption and advanced AI-driven fraud solutions position Riskified for outsized revenue growth, market share gains, and superior merchant retention.
  
• Multiyear contracts, region-leading expansion, and buybacks signal underestimated margin expansion and durable earnings outperformance relative to peers.
  
• Regulatory challenges, rising competition, and reliance on vulnerable verticals may weaken profitability, pressure margins, and undermine consistent revenue and earnings growth.

Catalysts

Develops and offers an e-commerce risk intelligent platform that allows online merchants to create trusted relationships with consumers in the United States, Europe, the Middle East, Africa, the Asia-Pacific, and the Americas.

• Analysts broadly agree that the multiproduct platform expands addressable markets, but the accelerating adoption across both new and existing verticals-demonstrated by 190% growth in new product revenue and early network effects in money transfer-suggests Riskified could capture market share and drive top-line revenue growth at a pace well above consensus estimates.
  
• Analyst consensus assumes multiyear contracts and stronger committed revenue will steadily improve net margins, but the company's 100% top-20 renewal rate with nearly half of these as multiyear deals, combined with rapid shareholder-aligned buybacks, points to a significant and underestimated acceleration in earnings and margin expansion.
  
• The explosion of sophisticated online fraud, driven by generative AI, is outpacing merchant in-house capabilities and is likely to drive an industry-wide shift toward external, data-rich, and AI-led platforms like Riskified, directly energizing merchant acquisition and revenue growth.
  
• With e-commerce and digital payments still experiencing robust global growth, especially in underpenetrated regions such as APAC and LATAM where Riskified reported region-leading expansion rates, the company's geography-diversified pipeline is positioned to deliver long-term, above-industry revenue growth and improved earnings durability.
  
• Riskified's unique data advantage-processing three times the transactional data of gateway competitors and leveraging it for custom AI models-creates demonstrably superior fraud detection and merchant ROI, which is likely to drive increasing client retention, pricing power, and sustained margin improvement beyond current expectations.

Riskified Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Riskified compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Riskified's revenue will grow by 10.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -11.1% today to 6.7% in 3 years time.
• The bullish analysts expect earnings to reach $29.9 million (and earnings per share of $0.17) by about August 2028, up from $-37.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 43.4x on those 2028 earnings, up from -22.3x today. This future PE is greater than the current PE for the US Software industry at 36.0x.
• Analysts expect the number of shares outstanding to decline by 6.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.53%, as per the Simply Wall St company report.

Riskified Future Earnings Per Share Growth

Risks

• Heightened regulatory scrutiny and tightening data privacy laws in key markets may limit Riskified's ability to collect and process the data critical to its AI-powered fraud prevention solutions, which could reduce product effectiveness and drive up compliance costs, thereby impacting future revenue growth and gross margins.
  
• The company's ongoing expansion into newer categories and geographies has resulted in a year-over-year decline in gross margins-as seen in the recent quarter gross margin dipping to about 50 percent-suggesting that the costs and risks of entering less-established verticals may remain a drag on profitability and net margins over time.
  
• Competitive threats remain significant, with large, well-capitalized players such as Stripe and other innovative startups increasingly targeting enterprise fraud prevention; this could put downward pressure on Riskified's pricing power, constrain revenue growth, and squeeze net margins if price-based competition intensifies.
  
• Evolving tactics by fraudsters, including increased use of generative AI and advanced cyberattacks, require ongoing heavy investment in research and development, and the need to constantly update algorithms may drive up operating expenses, thus limiting the company's ability to expand EBITDA margins and deliver improved earnings.
  
• The persistent concentration of revenue in core verticals such as Tickets & Travel and Fashion & Luxury Goods-both of which have exhibited same-store sales weakness and are subject to sector-specific downturns-exposes Riskified to volatility in these segments, which could result in unpredictable revenue streams and inconsistent earnings performance in the long run.

Valuation

• The assumed bullish price target for Riskified is $8.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Riskified's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $5.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $446.5 million, earnings will come to $29.9 million, and it would be trading on a PE ratio of 43.4x, assuming you use a discount rate of 8.5%.
• Given the current share price of $5.26, the bullish analyst price target of $8.0 is 34.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.