Decentralized Finance And Tougher Regulations Will Shrink Addressable Market

Key Takeaways

• Widespread fintech shifts, industry consolidation, and compliance demands threaten to reduce Riskified's market share, revenue growth, and innovation capacity.
  
• Competitive pressures and customer concentration risk undermine revenue stability, with commoditization driving down profitability and margins.
  
• Geographic and product diversification, strong renewals, advanced AI solutions, and a solid financial position collectively strengthen growth prospects and resilience against market volatility for Riskified.

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.

• The accelerating adoption of decentralized finance and cryptocurrencies threatens to bypass traditional e-commerce payment rails, which directly limits Riskified's core value proposition and could significantly shrink its addressable market over the next several years, exerting pressure on long-term revenue growth.
  
• Ongoing consolidation among global payment processors and leading e-commerce platforms is expected to drive more merchants to adopt in-house fraud prevention capabilities, eroding Riskified's market share, reducing revenue visibility, and creating substantial headwinds for both top-line expansion and client acquisition.
  
• The increasing complexity and stringency of global data privacy regulations, including evolving laws in the US and abroad, are likely to raise ongoing compliance costs and impede Riskified's ability to fully leverage its proprietary consumer data for AI-driven fraud detection, thus compressing operating margins and potentially stalling innovation.
  
• Persistent dependence on a concentrated group of large enterprise clients heightens the risk of unpredictable revenue declines if any major customer defect or insource fraud solutions, making revenue streams more volatile and undermining future earnings stability.
  
• Intensifying competition and commoditization of fraud prevention technology, driven by new entrants, open-source tools, and shifting industry preferences toward identity-based rather than transaction-based security frameworks, will likely cause downward pressure on average revenue per client and limit Riskified's ability to sustain margin expansion in the years ahead.

Riskified Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Riskified compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Riskified's revenue will grow by 9.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -11.1% today to 6.8% in 3 years time.
• The bearish analysts expect earnings to reach $29.6 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 bearish analyst cohort, the company would need to trade at a PE ratio of 27.4x on those 2028 earnings, up from -21.6x today. This future PE is lower than the current PE for the US Software industry at 37.6x.
• 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 8.52%, as per the Simply Wall St company report.

Riskified Future Earnings Per Share Growth

Risks

• Successful execution of global go-to-market strategy and ongoing geographic and vertical diversification-including rapid growth in APAC and the money transfer and payments category-can continue to drive top-line revenue growth and strengthen resilience against region-specific downturns in the long run.
  
• Strong renewal rates, especially a 100 percent renewal rate across top 20 contracts with many extended as multiyear agreements, improve revenue visibility and earnings stability, reducing risk of abrupt revenue declines.
  
• Expanded adoption of advanced AI-powered products, such as Policy Protect and a multiproduct platform addressing diverse fraud challenges, offers Riskified opportunities to win share from legacy solutions and in-house platforms, increasing revenue growth and supporting margin expansion through technology-driven differentiation.
  
• Sustained investment in AI and machine learning, combined with growing proprietary data from a broad merchant base, enhances the efficacy of fraud prevention solutions over time, bolstering customer satisfaction and retention and potentially supporting higher average contract values and long-term net margin improvements.
  
• A strong balance sheet with no debt, ongoing positive adjusted EBITDA, growing free cash flow, and a consistent share buyback program provide capital flexibility that allows the company to invest in growth opportunities and weather macroeconomic volatility, supporting both short
• and long-term earnings prospects.

Valuation

• The assumed bearish price target for Riskified is $5.0, which represents the lowest 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be $433.8 million, earnings will come to $29.6 million, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $5.09, the bearish analyst price target of $5.0 is 1.8% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.