The Motley Fool

Should I buy Trustpilot shares after the IPO?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

UK investor holding smartphone and monitoring shares
Image source: Getty Images

One UK stock that’s getting plenty of attention from investors right now is Trustpilot (LSE: TRST). Last week, it listed on the London Stock Exchange via an Initial Public Offering (IPO).

Should I buy Trustpilot shares for my own portfolio? Let’s take a look at the investment case.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Trustpilot’s business model

Trustpilot is the owner of – a consumer website that hosts reviews of businesses worldwide. At the end of 2020, over 529,000 domains had been reviewed on the website, with over 120m reviews by consumers.

Trustpilot sees itself as a ‘software-as-a-service’ company (providing software services to companies in return for a regular subscription fee) and operates a ‘freemium‘ business model. This is where businesses get a limited service for free, but can pay for additional services.

The subscription offering provides businesses with a range of benefits including access to actionable insights from Trustpilot’s big-data ecosystem and proprietary data analytics software. These services can help businesses raise their profile, build their own trust credentials, and serve their customers more effectively.

At the end of 2020, Trustpilot had over 19,500 customers from over 100 countries and territories subscribing for its premium services.

What I like about Trustpilot shares

There are a number of things I like about Trustpilot from an investment perspective. Firstly, the company is easy to understand and its business model is quite straightforward. That’s a plus.

Secondly, Trustpilot has registered impressive growth in recent years. For the year ended 31 December 2020, the company recorded revenue of $102m. That compares to revenue of $81.9m and $64.3m in 2019 and 2018 respectively. However, it notes in its prospectus that in future periods, it may not be able to sustain revenue growth at levels consistent with historical periods, or at all.

Third, the company should benefit from the continued growth of e-commerce. This is an industry that’s set to get much bigger in the years ahead. This should provide tailwinds for Trustpilot.

What I don’t like about Trustpilot shares

Having said all that, I have some reservations about Trustpilot shares. One is that the company isn’t making money. Last year, it had an operating loss of $9.4m. This is pretty normal for a young, tech start-up but it does add risk. Adjusted EBITDA in 2020 was $6.1m.

Another issue is that the stock’s expensive. At the current share price, the company’s market-cap is around £1.1bn. That means the trailing price-to-sales ratio is about 15. That’s relatively high which, again, adds risk.

Additionally, I have concerns over barriers to enter in the industry. While I like the fact that Trustpilot has a simple product and business model, this could potentially be a weakness. Is there anything to stop another company such as Alphabet (Google) launching a similar product and stealing market share?

Finally, I have some concerns over the company’s reputation. In the past, it’s been criticised for allowing fake reviews to be posted on its website. It’s worth noting that has 15% bad reviews on its own platform.

My view

Weighing everything up, I’m going to keep Trustpilot shares on my watchlist for now. The company looks interesting, but I think there are better growth shares I could buy right now.

Like this one…

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Edward Sheldon owns shares in Alphabet and London Stock Exchange. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.