experts believe artificial intelligence Artificial Intelligence (AI) will have a profound impact on business productivity in the years to come. AI will accelerate software development, automate factory operations, and streamline workflows for employees in virtually every industry. To that end, Arc Invest estimates that AI software revenue will grow at a rate of 42% annually to reach $14 trillion by 2030.
fintech loaded dice (NYSE: RSKD) is just one of many companies that could benefit from that trend. Its market capitalization is currently $965 million, but this figure could easily increase five times The next decade provided tailwinds behind AI adoption and e-commerce. At that pace, $200,000 invested in stocks today would be worth $1 million by 2033.
Here’s what investors should know about Riskified.
Solving the Problem of E-Commerce Fraud
Riskified believes that traditional risk management systems are prone to wrong decisions because they lack sufficient data. it creates some problems for e-commerce Businessman. They lose revenue when valid transactions are declined, and incur chargeback expenses when invalid transactions are accepted. Ultimately, both problems have the same result: the trader in question becomes less profitable.
Riskified uses big data and AI to solve those problems. Its platform relies on AI to correlate buyer behavior with fraud, using data from billions of past transactions as a reference point. Of course, Riskified faces stiff competition from large payments companies and financial institutions, but its platform features deeper integrations to capture richer data than alternative systems. This theoretically makes its AI better at identifying legitimate and illegitimate transactions.
Ultimately, Riskify increases approval rates and reduces chargeback incidence for online businesses, which translates into higher revenue and lower costs. In fact, the 10 largest merchants on its platform reported an 8% increase in revenue and a 39% decrease in fraud-related operating expenses. That compelling value proposition has helped Riskified churn much less. The company reported a gross retention rate of 99% last year, meaning it kept the majority of its merchants.
However, the broader e-commerce industry struggled last year as consumer spending slowed in response to higher inflation, and that led to weaker financial results from Riskified. Revenue grew only 14% to $261 million, which was a material decline from 35% growth the previous year. On the bright side, the company reported a non GAAP A profit of $0.03 per diluted share, up from a loss of $0.04 per diluted share, and it is well positioned to re-accelerate top-line growth in a more favorable economic environment.
Five times return potential
at the latestincome call CEO Edo Gal said that Risky is “one of the best at analyzing e-commerce transactions and determining whether or not they are fraudulent.” This advantage sets the company up for strong growth in the years to come. E-commerce is taking share from physical retail, and online merchants should naturally gravitate towards the most effective risk management system.
Not surprisingly, Risky is actually gaining market share. Last year, its gross merchandise volume (GMV) grew 18% to $106 billion, easily outpacing the 7% growth in retail e-commerce sales. But the company has only just begun to realize its potential. Retail e-commerce sales totaled $5.7 trillion last year, meaning Riskified captured less than 2% of its addressable market.
With this in mind, shares currently trade at a reasonable 3.6 bar sales, If Riskified grows revenue 18% annually over the next decade, its $965 million market cap could climb fivefold without any change in its price-to-sales ratio. That seems entirely plausible given its superior technology and the tailwinds behind e-commerce and AI software adoption.
A caveat about concentrated portfolios
Investors who invest large sums of money in smaller stocks are taking a lot of risk. They are effectively tying their financial well-being to the performance of certain companies. But portfolio diversification You can reduce that risk. Investors who spread capital across a large number of stocks (i.e. at least 25) are less likely to suffer catastrophic losses.
With this in mind, very few investors have a portfolio large enough to warrant investing $200,000 in a single stock. But the potential for five times returns with a very small amount is still attractive. While I believe Riskified is a stock that is worth owning, I would keep your position relatively small — no more than 2% of the portfolio.
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trevor genevine Do not have any position in any of the stocks mentioned. The Motley Fool has the posts and recommends the risky. A in The Motley Fool Disclosure Policy,
The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.