Good afternoon. I'm Reggie Smith. I lead Fintech Research here at JP Morgan, and I am pleased and happy to sit and talk with Eido Gal, CEO and co-founder of Riskified. Welcome. How are you?
I'm great. How are you?
Good, good, good. So I figured we would start with kind of a quick elevator pitch on the company, a little bit of background about the company, what you guys do, how you do it, who you do it for, and how you go after the market.
Yeah. So we help enterprise e-commerce companies manage their online fraud. When someone places a transaction online, we help these merchants verify that it really is the cardholder and not someone who stole that credit card or is using a fraudulent card. That's how we started. Work with over 50 publicly traded companies, Wayfair, Prada, Booking.com, across geographies, across industries, and probably over the past three years, we've expanded from the problem of just solving, you know, chargebacks or fraudulent credit cards, to solving other forms of abuse that merchants are experiencing around their policy and helping them also optimize their dispute process, which is how they fight a chargeback with a bank.
So, thinking about fraud, like, how much fraud is there in the system? I don't know if you can quantify it on a dollar basis. Yeah, like how large is this market, and what impact does it have on merchants?
So look, the reason merchants even care about this, and that's a great point, I should have highlighted it earlier, is that merchants are liable if they accept a transaction stemming from a stolen credit card, okay? So if I steal your credit card, purchase something at, you know, an online retailer, you see it on your statement, and you call the bank. You say, "Hey, it wasn't me. Someone stole my card," you get refunded. The money is taken out of the merchant's account, so merchants are liable. Now, if as a merchant, you're not screening every single e-commerce transaction to look for fraud, and you have a loophole somewhere in the system, fraud will go from zero to a hundred very quickly, right? And you would easily go bankrupt because of that.
So because of this dynamic, every single e-commerce merchant looks at all incoming transactions, screens them, and tries to identify good transactions from bad transactions because they're liable. Now, what type of mistakes do merchants have because of this dynamic? They accept bad transactions that they need to pay out, right, chargebacks. They turn away good transactions that might be, you know, have risky characteristics, or they've been burned by a similar transaction before. And this is a complex, expensive, difficult process for them to do. And Riskified says... Really, when we started the company, we said, "Hey, we think we can do it better than every single individual merchant. We'll have a better network effect, we'll have a better machine learning solution." And that was the thesis.
Got it. You hit on a theme that's very popular, machine learning, and I guess and AI. Maybe talk a little bit about how you guys use that to enhance your fraud protection or fraud identification.
No, you're right, and that was part of the thesis, that we didn't have this type of machine learning process or AI process when we started the company. So really, when we started, one of the most important things we do is we do supervised machine learning, right? In supervised machine learning, you tell the machine, the model, you tell them, "Hey, this is a good transaction, this is a bad transaction," and now you need to train on the good instances, and you need to train on the bad instances. And now an uncategorized transaction comes in, you need to understand if it's more similar to the good ones or to the bad ones, meaning that the tagging is incredibly important, right? It's not like a large language model that just goes online and trains based on some of that information. You really need to have that accurate tagging.
So the first few years of Riskified, what we were doing is we were actually tagging transactions ourselves in a very manual process. There, there wasn't an automated system for it yet. We were just looking at the transaction and saying, "Hey, you know, we think this is fraudulent. Here's how we know. Here's how we're gonna build a feature around it and create that tagging." Over time, we've created a very proprietary, unique database of taggings that we use to train our models, that's only available to us, and we've slowly ramped up the automation back then, based on this tagging. So it created a very, very accurate system. Something else that we do that's very unique is something called the Chargeback Guarantee.
We understood from our merchants that they said, "Well, listen, you know, if you're gonna recommend that I accept the transaction, but it turns out that it was fraudulent, and now I just lost a few million dollars, you're not really helping me." Okay? So we came up with a Chargeback Guarantee, meaning that we told our merchants, "Look, if we make a mistake, and we said, 'Hey, this is a good transaction,' but it turned out to be wrong, we'll pay you back for that." Right? We'll guarantee the performance of the system. And together with the Approval Rate Guarantee, the Chargeback Guarantee, we also provide an Approval Rate Guarantee, right? Because that's the other thing merchants care about.
They're like, "Okay, fine, you're blocking fraud, but I need to maximize acceptance rates." So those two things, when we were building the system, right, on the one hand, you have a lot of competing pressures. You have to be able to approve something because that's how you... You have the Approval Rate Guarantee, and that's how you're paid. We're paid for an approved guarantee transactions, but we have to be so confident in the transaction because we have the Chargeback Guarantee.
Sure.
Every time we make a mistake, and the chargeback comes in, it feeds straight into the system, and it's another great form of learning, which has also helped us kind of evolve the system over time.
So there's two things I wanted to dig into there. So from the merchant's perspective, working with you, like, how does that, I guess, impact them financially? Obviously, they don't have the chargeback risks, but, like, are there other benefits to the merchant? Like, how does it manifest in the-
Yeah
... in the P&L for the merchant?
So when we come to the merchant, the standard sales process is we help them kinda calculate their total, total cost of fraud. And what's the total cost of fraud? It's how much you're paying in chargebacks, how much you're paying in staffing, and how much you're paying in tools, right? The staffing and the tools, you have a staff that's managing this process, that's using a set of tools... usually chargebacks would be 70%-80% of that cost. Staffing would be kind of 10%-15%, and the remaining would be the tools that they use. And then the merchant would calculate and said, "You know what? My cost of fraud is 30 basis points. And then for that 30 basis points, my approval rate is 90%.
I accept 90% of incoming transactions." Okay, this is not to be confused with the, bank acceptance rate, payment acceptance rate. These are transactions that have gone through that entire funnel, and now the merchant is able to capture them-
Mm-hmm.
but they need to proactively decide: Do I want this transaction, or is it gonna result in a chargeback? Okay, so 30 basis points, 90% approval rate. Now, when you interact with Riskified, we would probably offer you either a cost savings for a similar approval rate or an increase in approval rate for a similar fee.
The same. Yeah. Yep.
Or some combination of both. And merchants really, depending on what type of merchant they are, what type of margin profile they have, that's how they would make that decision, right? If you're a luxury fashion merchant and you have 50%+ margin on these goods, you're gonna say: You know what? I wouldn't even mind paying you 35, 40-
Sure
basis points, a higher fee, if you feel you can get my approval rate up to 96%.
Yeah.
Right? I can't identify anything above 90. To me, you know, it's kinda random. But if you're better at that, by all means. Other merchants, for example, maybe an OTA, where they have extremely low margins in some categories, they just wanna minimize the fee that they're paying.
Right. That makes sense. Last kind of technical question from me: Is there a way to kind of quantify, how better your systems or screens have gotten over time? Like, how do you, how do you think about and measure and... Yeah.
So there's a few ways, right? The system becomes more accurate, and that accuracy manifests either in better performance or margins for Riskified, right? Because our chargebacks go down for the same fee-
Mm
and approval rate for the merchant. Another way to think about it is the incremental approval rate that we're providing our merchants increases over time.
Mm.
Right? And it's usually we're seeing some combination of both. So if you look at some of our filings, we release a report that shows chargeback cohorts over time. And pretty consistently, I think with every single cohort, you can see that, you know, whether they start at a slightly higher rate or lower rate, they move down significantly over time.
Mm-hmm.
And the reason being, this is machine learning, this is big data. Our system becomes more accurate. We train custom models for that merchant-specific performance, so we definitely see that. And then when you think about the approval rate that our merchants enjoy, I would say, I wanna be careful here, but probably the vast majority, 90+, 95, 98% of the cases, they're seeing higher incremental approval rates than they did pre-Riskified.
Sure.
Right? So it's pretty amazing. You're able to drive-- we're able to drive higher approval rates for a lower cost. Within that, we also have pretty positive margins, right? Like, 50%+ improvement over the past few quarters, so that's how much more accurate the system is.
Cool. You just jogged my memory. Let's talk about the most recent quarter and recent trends. I know you guys have turned the corner on profitability from EBITDA perspective. I know you're very proud of that. Maybe talk about real quickly the most recent quarter and what you guys articulated on the margin profile and guidance longer term.
Yeah. So it was, it was a great quarter. It was a culmination of a, let's call it a multi-year effort to shore up the expense base, improve the margin profile, and all while, you know, kinda obviously going after the large opportunity and growth. I think what happened post-IPO or right around the IPO timeframe, is we did a pretty significant investment in both the global go-to-market team and kinda the product platform. And we said: Hey, we think this is a necessary investment that will kinda taper off after 12-18 months, but it's gonna get paid dividends in the years ahead. And I think we're starting to see that, right? So we saw that, you know, the machine learning platform has significantly improved.
I think, Q1 was 56% gross margin, predominantly by, you know, improved machine learning and chargeback to billing ratios. That's up from 53% the prior year, and we've had a similar step-up the previous quarter in Q4, so clearly articulating, expanding gross margins. When we think about the revenue contribution from some of those newer geographies that, you know, we built that enterprise go-to-market motion for, Latin America, APAC, you know, really strong growth over the past few quarters. This quarter was the first quarter where we had standalone sales for our dispute and policy products. Those are the newer products that help you, outside of the traditional chargeback model. So that's helping us, you know, from a continuous selling motion, helping drive platform revenue.
So all those things, you know, within the storyline have really been clicking, and we feel good about.
So we've talked about risk, I guess, chargeback risk. You just mentioned that you're selling some of your other services as a standalone product. Maybe talk a little bit about what those products are, and it's kinda shocking that you're, you're able to get people to buy that without even-
Yeah
... the chargeback. What’s going on there?
So a few years ago, we were talking to our clients, and they said: "Look, this is fine that you've solved this problem of fraud chargebacks for me, but a few things: A, I have a lot of loss coming in, which might be from fraud, but it's not even related to chargebacks," right? So just imagine this: Instead of stealing your credit card, okay, I just need to call the merchant and tell them I never received my package, or I received the wrong size, and they're gonna send me a new pair. They're gonna refund me, especially if I'm a first-time customer, and they have very customer-friendly policies.
So fraudsters are onto this, and as you've blocked their ability to use stolen credit cards, they're finding ways to abuse these different merchant policies and request refunds and returns in a way that's clearly abusive, right? We're not just talking about, you know, there's a spectrum. It could either be fraud or it could be someone who's ordering 20 T-shirts and only keeping one. That's not, that's not fraud, that's, you know, a merchant decision if you want that type of customer. What our technology is great at is really identifying, you know, the great customers from the bad customers, and also providing good insights into the LTV of the ones in the middle, and what type of customers they are.
Mm-hmm.
And providing the merchant the tools to leverage this information to either block the customer, to, you know, say, "Hey, you know, you're not gonna get free shipping. You have a restocking fee." Or maybe someone else, "You know what? You get the minute you click return, you get an instantaneous refund, and you don't even need to wait for the item to come back to my warehouse system." Right? So it's helping merchants provide a different experience based on the customer profile. And merchants have really leaned into that. So that's the policy product. The dispute product, it's just, you know, chargebacks, especially non-fraud chargebacks. There's an entire process where you need to represent those with the bank, and you need to file, you know, what's called the Compelling Evidence. It has a lot of information.
It's a very manual process that they were doing, and we've created a very beautiful, fun, AI-based process to automate that.
Sounds good. Yeah, I thought it. I figured it was AI to get that done. Maybe zooming out, let's talk about the broader opportunity and how you think about the addressable market, and I guess your, your share today in that and where you think it can go over time.
Yeah. So on the one hand, you know, we're proud of the $120 billion in GMV we did, we processed last year. On the other hand, when you think about e-commerce, you know, and this is e-commerce, this includes travel, live events, delivery services, easily $6 trillion. We focus on the enterprise side of that. That's, you know, maybe $4 trillion. Massive, massive opportunity. When you think about our current diversification, about a third of the business is in travel, tickets, and live events. Another third of the business is in fashion, various forms, anywhere from the highest end of luxury to kind of what we call fast fashion. And another third of the business is within, you know, electronics, delivery services, remittance and payment companies.
So, relatively broad base and diversified, but we think there's both expansion in each and every one of these categories, but also going after, you know, kinda some of these newer categories where we are not as traditionally strong.
When you think about, you talked enterprise, and I think you said $4 trillion in sales. Is there a way to frame, like, the number of logos that is, and maybe, you know, how penetrated you are within that base?
I tend to think about it in GMV terms. I, I guess that in logo terms, you probably have the larger ones have an outsized share of that, like, global, GMV, but it's probably the top 3,000 that are driving the vast majority of that volume.
Got it. Okay, so you get 3,000. And then, you know, you talked about the change and your kinda go-to-market motion. What is that exactly? How has it changed, and what are you seeing from that change? Obviously, the standalone sales of Policy Protect and Dispute are probably evidence of that, but what else can you point to there?
Well, what's interesting in the sales motion is that we ended up not doing a specialized sales approach, right? So we don't have a specialized, like, policy sales team. But we've trained the existing sales team to do more of a platform sale. And again, they say, instead of saying: "Hey, you know, fraud chargebacks, this is where you help," we can put a wider ROI and holistic story, right? Overall chargebacks, and only 50% of that is related to fraud. You know, you're probably 10%-20% return rate or refund rate. We can probably block 10%-15% of that. That's what we've seen. So those are massive, massive numbers. You know, you probably have a few dozen people on kinda the chargeback dispute team. So the value-based selling is much wider right now.
And what's really great, and we've seen this quarter with the standalone sales, is some merchants have said: "You know what? I, I actually, I'm committed to another vendor for the next few quarters," or maybe even, "I, I don't feel like I have a chargeback or fraud issue right now. But policy? That's massive. That's, that's my biggest problem right now. Let's go. Let's, like, let's integrate." And that's a great cross-sell opportunity-
Sure
... for us as we build this trusted relationship with the merchant.
How, thinking about policy and dispute, like, how are those services priced?
Our core Chargeback product is priced as a percent of the merchant's GMV, right?
Mm-hmm.
In basis points. Our policy product, and also the dispute, it's more of a SaaS-like pricing model, but the tiers are based on merchant volume.
Okay.
So larger merchants would pay more, smaller merchants less, but it's a monthly subscription fee with overages.
Okay. Well, is there a way... So you've got a nice sizable business today. Do you have a sense of the cross-sell opportunity, upsell opportunity within just your existing merchant base?
Yeah. So the, the way we define it is, an upsell is selling more Chargeback Guarantee volume to someone who's on the Chargeback Guarantee platform, and a cross-sell is some of those newer products. Today, within our existing installed base, we think we have in the zone of $300 billion+ in upsell opportunity, right? So this is volume that's related to clients integrated to Riskified that we're not guaranteeing right now. And over time, we have consistently seen that we're able to upsell and capture more and more volume. So that's number one. Number two, on the cross-sell part, the numbers we've been seeing recently are policy deals have been priced at 10%-20% of Chargeback Guarantee deals, and dispute deals have been priced in the 5% range.
Got it. Okay. Maybe zooming out, talk about the trends. I guess the U.S. e-com numbers just came out late last week. I think it was up 8.5% year-over-year, which is a modest acceleration from the previous quarter. What are you seeing within your business in terms of, like, same-store sales and maybe walk through, like, the growth algorithm for-
Yeah
... for top line?
Well, look, I think it's similar to what at least I've heard from, I think, Shopify or Amazon or some of the others. Europe is slightly weaker, US stronger. Emerging countries, whether it's LATAM or certain areas of APAC, continue to show kind of strong and resilient growth. Luxury fashion is probably a bit weaker. Q1 probably had, you know, kind of some improvement. I think the beginning, let's call it April, probably some slight degradation.
Mm.
So I would say resilient, if uneven. Maybe that's the way I would categorize it. Within travel, kind of similar dynamics, that Europe is a bit weaker. I would say that there it's probably a bit more merchant-specific, right? Some merchants have been doing slightly better, some merchants have been doing not as well. On the fashion side, you know, I think what people have been saying, that the, the top end of the market is generally resilient-
Yeah
... but the lower end of the luxury market-
Sure
... is a bit more challenged, right? So the $10,000 handbag is selling as well. The $701 is doing not so well. Aspirational luxury has been hit. What else? Yeah, and thinking about the growth algorithm, obviously we're tied to e-com, so as macro stabilizes and improve that, you know, move from being a headwind to a tailwind-
Sure
... hopefully soon. And aside from that, obviously upselling, cross-selling, new logos, main geographies, new geographies, new verticals, all big components. Past 1-2 years, almost all of the growth has come from new and upsell-
Mm-hmm
... because of the more challenging macro, which is pretty different than historical, even pre-COVID norms, when kind of macro was more of a tailwind.
Thinking about, you know, kind of... This isn't long-term guidance, but in a perfect world or a less macro-hindered world, what do you think the, you know, kind of the same-store base growth? Like, how much of a headwind are you think you're incurring right now from the macro? 'Cause I know you, you guys... Well, maybe what was same-store sales growth before the headwinds, and then, you know-
NDR, which obviously also has upsells in it and, you know, kinda downsells, but gross retention has been 99%-98%, so that's not really a factor, has been 115%-120% historically, pre-COVID as well.
Yeah.
Right now it's lower. It's in the range of zone of 105, maybe a point below. So I think that's... You know, when I look at that, the biggest delta has been in the macro numbers relative to everything else-
Mm-hmm
... except that number.
Got it. Is there any insights you can share on booking momentum? I don't know how you would quantify that, but is there a way to kinda sensitize or appreciate it? It seems like you guys are signing a lot of deals and have a pretty robust pipeline. I'm not sure if there's a way to quantify that more specifically.
Yeah. I mean, look, we're really happy with some of the Q4 go-lives. They've been contributing more than we anticipated so far in the year. Like we mentioned, almost all of the growth coming from new and upsell over the past 2 years, so I think that's a great way to see the success there. Pipeline continues to be healthy, healthier. Win rates have been in the 60%-80% range the past few quarters, also relatively high. You know, the platform selling has obviously helped that as well. So feeling confident and good about that.
Yeah, that sounds good. Maybe we talked about it earlier, but you guys put out I think, some really good, longer term margin expectations. Maybe kind of reiterate those, and talk about, you know, how sensitive that may be to the economy, or the visibility, into achieving those goals and whether you need, you know, a robust rebound, macro-driven wise, or if you can get there kind of just steady state with-
Yeah
... with the way the business is trending.
So we shared a midterm guide by 2026, 15%-20% adjusted EBITDA margins, and after which we believe we can kind of march higher on the adjusted side. We're not—this is not dependent on any type of macro improvement. We can get there by, you know, kinda steady state, similar to a midpoint of this year's guide. You know, past two years' growth would probably be even better. So we don't feel like we need a macro acceleration to get there. Obviously, if there is a macro acceleration or just some better performance on our end on things we do control, like the new, the cross, the newer products, you know, would be easier to get to the higher end of that range.
Sure. Sure. Good, good, good. One second. Sorry. Eyes are bad. Capital deployment. So you've announced, I think it's 2 share repurchases?
We just announced the second one.
Yeah.
So announced $150 million. Executed about 55-ish so far, so $95 million remaining. So look, overall, we have a very, very large cash position. We feel good, you know. We've guided to generating, not guided, but mentioned that we're gonna be generating over $30 million free cash flow. So definitely not needed to run the business. And we think that just given the attractive valuation-
Sure.
you know, it's one of the best use of proceeds that we can identify right now. Having said that, we are actively searching for M&A. Looking for smaller things to tuck into the product platform, to sell to our kinda existing blue-chip base of deeply integrated clients. But it's been difficult to find a great solution for the right price. I think there's still some disconnect between public company valuations and private company expectations.
Sure. Is there a way to, we think about, I guess, your product suite, like thematically, like what are the types of capabilities that are, that make sense, you think, to bolt on to what you do, without giving away the entire playbook?
I think the policy product goes much deeper into the post-fulfillment and shipping, not the warehousing, but the logistics aspect of it, so that's definitely an interesting area. I think the data that we generate and the machine learning platform that we have, it can solve questions, you know, not just questions around, "Is this gonna be a fraudulent transaction," or, "Who is this customer?" But questions around LTV and purchasing patterns and behavior. So we think there's a lot of opportunity there as well.
Stepping back, I know you talked about enterprise clients. Is there a way or is there a need for your capabilities lower down the stack, SMB-wise?
I mean, there is, right? In a sense, we've built the world's most sophisticated and accurate decisioning engine, right? And then the question is: how do we package this complexity in a way that's easy, both easy to purchase, easy to service, and easy to use by the SMBs? And that's something that we believe we'll attain more through platform partnerships, so that's the strategy when we think about the SMB market.
Got it. Okay. I'll... We've got a few minutes left. I will open it up to questions in the audience. Just if you have a question, raise your hand, I'll get a microphone over to you.
Thank you. Hey, can you talk about what you guys do differently than competitors on the Chargeback Guarantee product? And then, are you seeing competition in some of the ancillary products, like the, Dispute Resolve and Policy Protect?
Yeah. So look, I'll relay a story with a client visit a few weeks ago, right? I came, and I was starting to pitch on the value of the Chargeback Guarantee, and he said: "Look, stop. You don't need to pitch me. My existing vendor had a, quote-unquote, model drift over the weekend, and I just lost $5 million. Okay, I understand why I would prefer to use someone who's accountable, right? Accountable for their decisions, accountable for their mistakes, and why that makes more business sense for myself." I think that we're able to provide that, and I think it's clear to understand why there's more value to the merchant and someone who would also guarantee their decisions, versus someone who just recommends a decision and does not guarantee that, right?
We're able to do that because of our technology is so much more accurate. Our technology is so much more accurate because, you know, we started two years tagging transactions manually. We've only done chargeback guarantee because we've had- so we've had a feedback loop into the system, and it's been built that way, kinda day in, day out. So we only do that, and we really specialize in it. So I think that's created that different- allowed us to enable that business model or offer that business model. And then on the policy side, more than anything else, we're just seeing merchants managing this internally with CSVs, right? I think this is, this is starting to become a better-known problem, so we're seeing kinda probably smaller companies creep into the space, but I don't think that there's anything that's, well-known.
Okay. I love asking CEOs this question: looking five years out, where is Riskified at that point?
A core part of the workflow for enterprise e-commerce companies, helping them solve, by leveraging AI and data, helping them solve multiple business problems.
Sounds good. Let's see, we've hit most of everything I have here. I'll leave you with this. I guess the top two or three things you're most excited about, over the next 24 months?
The product platform has to be number one. I've been just involved in building that and seeing some of the merchant kinda feedback and traction there, and that's probably one of the most exciting things. Second thing, probably just continuing to see the macro shifts... or anticipate or hoping to see that in the industry. And just continuing to scale and grow with the team and the business.
You think, are there any geographies that you're most excited about over the next five years?
Probably in the opportunity in Latin America and APAC.
Latin America. Got it. And then, there was one more I had for you. I lost it.
That's all right. We covered a good bit.
Cool. Well, listen-
All right
... thank you.
Thanks, man.
Good stuff.
Appreciate it.