Trustpilot starts generating cash flow

Depending on what metric we look at, there is an argument that review website TrustPilot (TRST) is profitable. Its exact profitability can be debated, but what is undeniable, is that it is moving in the right direction.

In the six months to June, adjusted cash profit (Ebitda) improved to $5.7mn (£4.6mn) from a loss of $5.4mn last year. However, this figure doesn’t consider the fact that it capitalises the sales commissions. Removing the impairment, amortisation and depreciation cost, it made an operating loss of $2mn, although still a big improvement from the $10mn loss last year.

The fact it recognises the revenue over the length of the contracts but gets paid upfront, means the company generates free cash flow in excess of its profits. The company swung to a free cash inflow of £6mn from an outflow of £13mn last year.

This improved cash flow and profitability ultimately stems from the 15 per cent increase in revenue. At the same time, it cut sales and marketing costs by $5.2mn to $23.8mn. This is all part of the push to create a more profitable business and the transition is ahead of schedule. Management is now confident in forecasting that full-year adjusted cash profit will be ahead of market expectations. It is still expecting mid-teens revenue growth.  

FactSet consensus expects cash profit to rise to $10.4mn and free cash flow to increase to $10.5mn in 2024. Trustpilot’s market cap is currently over 40 times that, which is expensive. The argument is it will benefit from operational leverage as the business grows. At least, that’s what new chief executive Adrian Blair will be hoping for. We stick to hold.

Last IC view: Hold, 90p, 21 Mar 2023