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The stock has shone since listing in London but that is not yet reflected in the bottom line
Thursday 21 Oct 2021 Author: Steven Frazer

It may not go near the performance of nascent cyber security star Darktrace (DARK) but investors piled in to Trustpilot (TRST) after shares in the online reviews platform began trading on the London market in March 2021.

Retail investors were unable to participate directly in the IPO (initial public offering) so there was a ready army of willing buyers poised to pounce. And pounce they did, initially anyway, sending the stock soaring 11% early on its market debut, although the stock ended its first day flat.

The Denmark-based digital reviews and analytics platform had earlier priced its IPO at 265p a share, valuing the business at £1.08 billion.

Like many digital commerce businesses, Trustpilot’s business grew rapidly during the pandemic. The platform hosts more than 144 million consumer reviews of products and businesses that cover around 626,000 web domains. It had 21,000 paying customers at 30 June 2021 and is adding more than 15,000 new domains every month on average, according to chief executive and founder Peter Holten Muehlmann.


Trustpilot has certainly seen rapid growth in recent years. The company claims compound average revenue growth of 30% a year between 2015 and 2020, and ‘high retention rates’ from its software subscriptions model, which implies that most of any year’s revenue comes from customers who subscribed in previous years. Customer retention rates ran at 97% in the first half this year.

Revenue went from $64.3 million to $102 million in the past two years, while adjusted earnings before interest, taxes, depreciation and amortisation swung from a $21.5 million loss to a $6.1 million profit.

Berenberg forecasts the company will generate a modest net profit of $11 million in 2023.

The key to Trustpilot’s future will be its success at becoming the home for reliable and valuable opinions about businesses, brands and services and tapping the network benefits.

The more consumers that use the platform and share their own opinions, the richer the insights the company can offer clients and the more opportunities they will have to earn the trust of consumers from all around the world.

Done well, this creates a virtuous circle where consumers feel drawn to Trustpilot because it is where meaningful services are listed and reviewed, and the more consumers that use Trustpilot, the more businesses will feel they cannot afford not to be on the platform.

This network effect is how Autotrader (AUTO) and Rightmove (RMV) have come to dominate car and home buying markets respectively.


The growth runway for Trustpilot looks extensive. According to a Cavas8 report released in 2020, 89% of consumers in the UK, France and the US checked reviews online before making a purchase. Trustpilot operates in more than 100 markets covering industries from beauty to beds, fashion to finance, technology    to travel.

According to Alexa February 2021 rankings, Trustpilot sits among the top 0.0001% of most visited websites worldwide. The long-term total addressable global market opportunity, excluding China, has been estimated at $50 billion, albeit based on a study commissioned by Trustpilot. The current market is estimated at $6.3 billion, so even if $50 billion is over-egged, there is still huge scope for expansion.

Funding this growth potential won’t be a problem. At 30 June 2021 the company had net cash of $91 million and no debt. In the first half this year it burned through $12 million worth of cash, although IPO costs were a large part of that which won’t   be repeated.


That said, potential investors should not expect Trustpilot to have the market to itself. Competition comes from several directions with New York-listed Yelp perhaps the best point of comparison. It has significantly larger revenues, forecast at more than $1 billion this year, and had been profitable for three years straight pre-pandemic.

Trustpilot also has a long-run battle on its hands to prevent dodgy reviews that give consumers a bum steer. The BBC’s Watchdog programme ran an investigation on Trustpilot in 2019 after receiving consumer complaints that its reviews cannot always be relied on.

The company launched its own investigation after discovering ‘suspicious patterns’ and while Trustpilot can be expected to chase down abuse where it can, it may not always be able to verify the content.

Serious failures could damage Trustpilot’s brand and significantly impact the share price. Shares would like to see more evidence that Trustpilot can manage these challenges and build a reliable stream of profits for shareholders before we’d be willing to recommend the stock to our readers.

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