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Trustpilot shares: should I buy after the IPO?

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Trustpilot (LSE: TRST) shares have made their debut on the London stock market through an initial public offering (IPO). It follows a flurry of tech companies flocking to London to float.

In fact, I highlighted Trustpilot’s IPO as one to look out for in December. Now that the shares are live, the question I ask myself is should I buy the stock? For now, I’m holding fire but here are my views on the company.

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Trustpilot: an overview

Trust is an important factor in all commerce. That’s the concept behind Trustpilot. It’s a global, independent review platform that allows consumers to write reviews for almost any type of business.

In a nutshell, Trustpilot attempts to fill the trust gap between consumers and businesses. Consumers provide feedback about a product or service and the business can gain insights on how to improve.

Trustpilot was founded in 2007 by CEO Peter Mühlmann in a Danish garage. Since then, the company has morphed into a global superstar. Trustpilot now has 120m consumer reviews and almost 20,000 paying businesses on its platform.

What I like about the company is that there’s a review on just about everything. I’ll always check Trustpilot to see what others are saying about a particular service or product before I dip my toe in. For me, it provides an independent layer of trust.

The business model

So how does Trustpilot make money? Well, it uses the freemium business model. Any business can use Trustpilot’s basic services for free. This includes seeing and responding to consumer reviews.

But in order to get access to the useful information such as data analytics, Trustpilot offers several paid subscription modules for businesses. These increase in levels of functionality and are provided on a software-as-a-service (or SaaS) basis.

I like that Trustpilot makes money through recurring subscriptions. It offers some degree of revenue visibility and stability.

Growth plans

It’s nice to see that Trustpilot’s mission is to become a universal symbol of trust. But it’s going to need money to do that. So the funds raised from the IPO will be used to fuel Trust pilot’s growth plans.

It intends to offer new products and services especially using artificial intelligence. There will be a focus on increasing the number of paying businesses as well as entering new industries and product sectors.

My view

I like Trustpilot’s business and it’s pleasing to see another tech company join the London scene. It gives me more to choose from. While the company’s revenue is growing, it’s still unprofitable. In 2020, Trustpilot generated $102m in sales but made a $12m loss.

I’m not surprised the company decided to IPO. During the pandemic, many consumers have been shopping online and hence Trustpilot has seen its business expand. It makes sense to come to market on a high. But I typically don’t buy on or straight after an IPO due to the lack of transparency. The IPO prospectus may be over 200 pages in length, but it doesn’t provide me with much information.

As a public company, Trustpilot will provide regular trading updates. This means that there should be more details to base my research on. But for now, I’ll only be watching Trustpilot shares.

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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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