Stem and Riskified Lead Shift Toward High-Margin Software and Services
A wave of Q4 2025 earnings reports highlights a sector-wide pivot toward high-margin software and recurring revenue models. Companies like Stem and Riskified are successfully transitioning away from low-margin hardware and transaction-heavy models to achieve record profitability and cash flow.
Key Takeaways
- A wave of Q4 2025 earnings reports highlights a sector-wide pivot toward high-margin software and recurring revenue models.
- Companies like Stem and Riskified are successfully transitioning away from low-margin hardware and transaction-heavy models to achieve record profitability and cash flow.
Mentioned
Key Intelligence
Key Facts
- 1Stem achieved its first full-year positive Adjusted EBITDA of $7 million, driven by a 25% growth in software and services revenue.
- 2Riskified reported 65% year-over-year revenue growth and reached $155.1 billion in total Gross Merchandise Volume (GMV).
- 3Stevanato Group saw GLP-1 related products grow to 20% of total revenue, representing a 50% increase in that specific segment.
- 4Nexxen's data products revenue increased by 51% year-over-year, despite a decline in traditional CTV advertising spend.
- 5Red Violet achieved a record 83% adjusted gross margin, with its IDI billable customer base surpassing 10,000.
Who's Affected
Analysis
The fourth-quarter earnings cycle for 2025 has revealed a definitive structural shift across the e-commerce and retail-adjacent technology landscape. The common thread among top performers is a decisive pivot away from low-margin hardware and transaction-heavy models toward high-margin, recurring software and data services. This transition is most evident in the results from Stem (STEM) and Riskified (RSKD), both of which reported milestone profitability and record margins as they successfully reshaped their revenue mixes.
Stem’s performance serves as a blueprint for this industrial-to-software transformation. The company reported total revenue of $156 million, but the critical data point lies in the composition: $141 million, or over 90%, was derived from software, services, and edge hardware. This represents a 25% year-over-year increase in high-margin segments, while low-margin battery hardware resale was intentionally throttled to just $15 million. This strategic realignment allowed Stem to achieve its first full-year positive Adjusted EBITDA of $7 million and positive operating cash flow. For retailers and commercial energy users, Stem’s PowerTrack software is becoming an essential infrastructure layer, as evidenced by the $61 million in Annual Recurring Revenue (ARR) at year-end.
The company reported total revenue of $156 million, but the critical data point lies in the composition: $141 million, or over 90%, was derived from software, services, and edge hardware.
In the e-commerce payments and fraud prevention space, Riskified demonstrated the scalability of its AI-driven platform. The company posted 65% year-over-year revenue growth, reaching $344.6 million for the full year. More importantly, Riskified achieved GAAP net income of $5.8 million, a significant swing from the previous year’s loss. The growth was largely fueled by a 75% surge in the money transfer and payments vertical, alongside a 53% expansion in the APAC region. As retailers face increasingly sophisticated fraud threats, Riskified’s expansion of its product suite—including Policy Protect and AccountSecure—has seen a 50% increase in multi-product adoption among merchants. This diversification is insulating the company from fluctuations in any single retail category, such as the relatively modest 8% growth seen in fashion and luxury.
Meanwhile, the advertising technology sector is undergoing its own data-centric evolution. Nexxen (NEXN) reported a 19% decline in Connected TV (CTV) revenue, but this was offset by a massive 51% increase in revenue from its data products. This suggests that while raw ad spend in traditional digital channels may be softening, retailers are willing to pay a premium for high-quality consumer data and targeting capabilities. Nexxen’s shift toward self-service and data-driven programmatic advertising reflects a broader retail trend: the move from broad-reach marketing to precision, data-backed customer acquisition.
What to Watch
In the broader retail ecosystem, the impact of the GLP-1 pharmaceutical boom is becoming a significant tailwind for packaging and delivery specialists. Stevanato Group (STVN) reported that GLP-1 related products now account for approximately 20% of total company revenue, growing over 50% year-over-year. This surge in demand for high-value biopharmaceutical solutions has pushed Stevanato’s capacity to near full utilization, prompting a 29% increase in high-value solution revenue. This trend highlights how shifts in consumer healthcare habits are creating massive downstream opportunities for specialized retail and logistics infrastructure.
Looking ahead to 2026, the focus for these companies will remain on 'quality of revenue.' Investors are no longer rewarding growth at any cost; instead, the market is prioritizing companies that can demonstrate a path to sustained GAAP profitability through software-as-a-service (SaaS) models and high-retention data products. As seen with Red Violet’s record 83% adjusted gross margin and Stem’s record 46% non-GAAP gross margin, the winners in the next phase of the e-commerce cycle will be those that control the software and data layers of the global supply chain.
Cite This Page
"Stem and Riskified Lead Shift Toward High-Margin Software and Services." Retail Intelligence Brief, March 5, 2026. https://getretailbrief.com/story/stem-riskified-q4-2025-earnings-analysis
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