Is successful hi-tech company divesting from Israel to cover up financial problems?

Riskified, whose value tumbled by $2 billion in less than two years, claims reason for leaving Israel and downsizing operations is judicial reform.

By Adina Katz, World Israel News

Riskified, a successful Israeli hi-tech company, recently made a dramatic announcement that it will be divesting millions of dollars from the Jewish State.

In an email to employees, the CEO of the company, Eido Gal, framed the move as their way to protest against potential reforms to Israel’s judicial systems. He also claimed that moving money out of Israel is necessary in order to protect the business from a catastrophic economic fall-out, should the changes to the courts come to fruition.

But is Riskified really divesting for ideological reasons, or are they leveraging the political chaos in Israel as an opportunity to cover up financial struggles within their businesses?

Forced relocation instead of layoffs?

The e-commerce fraud protection company announced in an email to employees last week that it was closing its offices in Israel, withdrawing $500 million from the country, and relocating its operations to Portugal.

“The laws being enacted might lead to the breakup of our judicial system’s independence. It is highly likely that the matter would lead to a major and protracted economic recession in Israel,” read the email penned by Gal.

“More importantly, this will result in Israel changing from a democracy with liberal values into a more authoritarian state. I believe that only bad results will come from this ‘reform.'”

Notably, the email briefly mentioned that the company had only “a limited number of relocation packages available.”

There was vague reference to “support” for “people who wish to make the move themselves,” but it was clear that most Riskified employees would need to spearhead the bulk of their own relocation costs.

Presumably, employees who cannot afford to pay their own way to a new life in Portugal would be unable to continue working at Riskified.

If Riskified, like many other companies in Israel’s hi-tech industry, wants to downsize its employees without being the bad guy and firing them, placing the onus on workers to relocate to a different continent provides a convenient smokescreen.

Tumbling share prices, new regulations

Riskified made its IPO in July 2021, at a valuation of $3.3 billion and $21 per share. However, last month Riskified’s share prices were traded at just $5, meaning that the overall valuation of the company is likely far lower today.

According to a January 2022 Haaretz report published before the announcement that the company was moving its funds out of Israel, Riskified is currently valued at $1.3 billion. While that is a respectable sum, it’s far lower than its valuation less than two years ago.

The Haaretz report touched on numerous issues within Riskified’s business development strategy, which were noted by analysts at J.P. Morgan.

Riskified has an arduous, lengthy onboarding process, which means that signing a new client can take upwards of a year. Additionally, changes to European regulations regarding e-commerce have rendered Riskified’s solution less relevant on the continent.

“According to…forecasts, [Riskified] will end the year with earnings of $227 million with a negative EBITDA (earnings before interest, taxes, depreciation, and amortization) of around $25 million,” Haaretz reported.

Considering the major financial struggles facing Riskified, it’s likely that the company wishes to downsize its operations and payroll costs. Framing these moves as a noble act of political protest could provide a way for Riskified save face rather than admit that it needs to make cuts in order to stay afloat.

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