TRUSTPILOT (TRST)

Price: 161p

Market cap: £672 million

Investors may think they have missed the Trustpilot (TRST) boat after the shares have doubled in six months. Not so, in our opinion. Shares believes this re-rating story has only just started and the share price could easily surge past 200p this year and far higher over time.

To put this into context, when analysts at Berenberg and Peel Hunt began covering the stock in summer 2021, both saw the stock hitting 430p. While it has taken a little longer than originally hoped for Trustpilot to make a profit breakthrough, rapid progress is on the cards this year.

Trustpilot listed in London in March 2021 with a market capitalisation of £1.08 billion and a 265p share price.

Behind the stock’s recent rally are repeated earnings upgrades and excitement surrounding the arrival in September of Adrian Blair as chief executive, the former global chief operating officer of UK food delivery firm Just Eat (JET).

Like many digital commerce businesses, Trustpilot’s business grew rapidly during the pandemic. The platform now hosts more than 167 million consumer reviews of products and services across 714,000 websites. Thousands of businesses now turn to Trustpilot for customer transparency and the underlying consumer data analytics it provides to clients.

Crucially, this creates valuable network benefits. The more consumers that use the platform and share their own opinions, the richer the insights the company can offer clients. 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 who use Trustpilot, the more businesses will feel they cannot afford not to be on the platform.

Independent survey data from Sirkin Research showed 87% of consumers in the UK and US found ads more trustworthy with the Trustpilot logo and star rating than without.

Annualised recurring revenues are running at £197 million, and Berenberg sees 44% adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) growth this year (to 31 Dec), and EBITDA margins of 15%, versus analysts’ long-term 30%-plus target.

The investment case is similar to Rightmove (RMV), one of our Great Ideas last week, and Auto Trader (AUTO), both platform businesses which have consistently beaten the market for returns.

While fierce competition from the likes of New York-listed Yelp (YELP:NYSE) and others is a certainty, Trustpilot is already cemented in the minds of consumers and on balance it still looks like an exciting long-run growth story to us.

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