The law firm of Kirby McInerney LLP announces that a class action lawsuit has been filed in the U.S. District Court for the Southern District of New York on behalf of those who acquired Riskified Ltd. (“Riskified” or the “Company”) (NYSE: RSKD) Class A ordinary shares pursuant and/or traceable to the Company’s July 2021 initial public offering (the “IPO”). Investors have until July 1, 2022 to apply to the Court to be appointed as lead plaintiff in the lawsuit.
Riskified operates a risk management platform that utilizes machine learning to protect its merchant-clients from fraud. Riskified’s proprietary machine learning platform purportedly identifies the individual behind each online interaction, helping Riskified’s customers, who consist of online merchants, eliminate risk and uncertainty from their business.
On July 1, 2021, the Company filed with the SEC a registration statement on Form F-1 for the IPO, which, after several amendments, was declared effective on July 28, 2021 (the “Registration Statement”). On July 30, 2021, the Company filed with the SEC a prospectus for the IPO on Form 424B4, which was incorporated into and formed part of the Registration Statement. The Registration Statement was used to sell to the investing public 20.125 million Riskified Class A ordinary shares at $21 per share, generating over $422 million in gross proceeds.
On September 9, 2021, Riskified issued a press release announcing the Company’s financial results for the second quarter ended June 30, 2021 – i.e., the quarter prior to the IPO. On a conference call to discuss the results, Defendant Dotcheva stated that Riskified tended “to experience higher chargebacks when we enter a new industry.” On this news, Riskified’s stock price declined by $3.80 per share, or approximately 10.64%, from $35.73 per share on September 8, 2021 to close at $31.93 per share on September 9, 2021.
On November 16, 2021, Riskified announced its third quarter ended September 30, 2021 results, revealing that Riskified’s revenue growth had declined to 26% year-over-year, Riskified’s Gross Merchandise Value (“GMV”) growth had declined to 28% year-over-year, Riskified’s gross profits had increased only 10% year-over-year, Riskified’s gross profit margins had plummeted to just 46% during the quarter, and Riskified’s gross profit fell sequentially to $24.3 million. Further, Riskified’s cost of revenue had jumped to $28.3 million in the third quarter of 2021, primarily as a result of a sharp increase in chargeback expenses. During the earnings call, Defendant Dotcheva blamed Riskified’s growing merchant base as a primary cause of increased chargebacks. On this news, Riskified’s stock price declined by $4.78 per share, or approximately 27.04%, from $17.68 per share on November 15, 2021 to close at $12.90 per share on November 16, 2021.
On February 23, 2022, Riskified announced its fourth quarter and year ended December 31, 2021 results, disclosing that Riskified’s revenue growth and GMV growth had continued to decelerate, Riskified’s gross profit growth remained muted, and Riskified’s cost of revenue had continued to climb. Riskified also revealed that it expected to generate only between $254 million and $257 million in 2022 revenues (which would represent only 11.5% year-over-year growth) and an adjusted 2022 earnings before interest, taxes, depreciation, and amortization of between negative $69 million and $66 million (which would more than triple the losses suffered by Riskified in 2021), indicating that the adverse business trends being suffered by Riskified were in fact accelerating. During the earnings call the same day, Defendant Dotcheva stated that the year-over-year decline in gross profit margin experienced “was driven primarily by [Riskified’s] expansion into new industries and regions, increase of the tickets in travel industry as a percentage of total billings, as well as the onboarding of new merchants.” On this news, Riskified’s stock price declined by $0.62 per share, or approximately 9.32%, from $6.65 per share on February 22, 2022 to close at $6.03 per share on February 23, 2022.
At the time of the filing of the complaint, Riskified Class A closed at $5.40 per share, more than 70% below the IPO price.
The lawsuit alleges that the IPO’s Registration Statement made inaccurate statements of material fact because they failed to disclose the following adverse facts that existed at the time of the IPO: (i) as Riskified expanded its user base, the quality of Riskified’s machine learning platform had deteriorated (rather than improved as represented in the Registration Statement), because of, among other things, inaccuracies in the algorithms associated with onboarding new merchants and entering new geographies and industries; (ii) Riskified had expanded its customer base into industries with relatively high rates of fraud – including partnerships with cryptocurrency and remittance business – in which Riskified had limited experience and that this expansion has negatively impacted the effectiveness of Riskified’s machine learning platform; (iii) as a result, Riskified was suffering from materially higher chargebacks and cost of revenue and depressed gross profits and gross profit margins during its third fiscal quarter of 2021; and (iv) thus, the Registration Statement’s representations regarding Riskified’s historical financial and operational metrics and purported market opportunities did not accurately reflect the actual business, operations, and financial results and trajectory of Riskified prior to and at the time of the IPO, and were materially false and misleading, and lacked a factual basis.