Momentum builds behind newly profitable Trustpilot

Just when you thought its shares couldn’t go higher, consumer review website Trustpilot (TRST) swung to a profit in the year ending 31 December. Adjusted Ebitda, the company’s preferred metric, came in ahead of the market’s expectations at $16mn (£12.6mn) – against a loss of $4mn in FY2022. 

Of course, the “adjusted” qualifier is doing some heavy lifting here, as it excludes the financial impact of depreciation, amortisation and share-based compensation. Were these factored in, Trustpilot would have made a small operating loss of around $600,000 – which nonetheless pales in comparison with its $16mn loss the previous year. 

Put plainly, things are improving for the group. Part of this is down to the simple fact that more people are using the platform: its total cumulative reviews were up 25 per cent to 267mn in FY2023. 

Meanwhile, cash inflow from operating activities was nearly $21mn, which is certainly better than 2022’s cash outflow of $2.7mn. According to management, the boost was “largely driven by revenue growth, improving operating leverage, and a higher bonus accrual within working capital”. 

Trustpilot also claims to have made headway with spotting fake reviews on its platform (ie those paid for by businesses and written by third parties). The group said more than 3mn fraudulent posts were removed last year, with almost 80 per cent of them automatically eliminated by its fraud detection systems.

While fake reviews might be the company’s most significant reputational hurdle, its hefty valuation is perhaps the biggest barrier for would-be investors. The shares are up more than 50 per cent in the year to date, thanks in part to a new buyback programme. But with a consensus forward price/earnings ratio of more than 144 times for FY2024, we’re happy to wait on the sidelines a little longer. Hold.

Last IC view: Hold, 99p, 19 September 2023