Riskified Ltd.

In July 2021, Riskified conducted its IPO, selling 20.125 million Class A shares at $21 per share.

On November 16, 2021, Riskified released its financial results for third quarter 2021, the period during which the IPO was conducted. The Company reported that revenue growth declined to 26% year-over-year, compared to 55% and 47% revenue growth in previous quarters. The Company’s gross profit margins had also declined while its cost of revenue increased to $28.3 million – 30% above the Company’s cost of revenue for the first and second quarters of 2021. The Company reassured investors that the results were “expected” and “definitely aligned” to expectations.

Then, on February 23, 2022, Riskified released its fourth quarter and full year 2021 financial results, reporting a continued decline in revenue growth and increase in cost of revenue. Additionally, the Company stated that its expected gross margin for 2022 would be only “at or above 51%.”

Following this news, Riskified Class A shares traded below $6 per share, more than 70% below the IPO price.

The complaint filed in this class action alleges that Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants failed to disclose to investors that: (1) 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; (2) 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; (3) 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 (4) as a result, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis at all relevant times.