The online review platform achieved a £1.1bn valuation when it floated in late March, with Morgan Stanley and JP Morgan Cazenove running the process with Berenberg and Danske Bank joint bookrunners.
With six weeks passed, those investments banks have been to publish their research on the company, with JPMorgan starting coverage with an ‘overweight’ rating and 350p share price target.
Trustpilot’s consumer review platform is “unique”, JPMorgan said, using algorithms, AI and human intervention to ensure quality and seeking to remove fake review from the platform.
Using a software-as-a-service business model, the company offers free and paid services, of which around 19,600 were paying customers, generating US$113mln for the full year.
JPMorgan forecasts 2020-23 bookings and revenue compound annual growth rates of 30% and 27% driven by improved net retention rates as well as increased penetration and geographic expansion, with a large opportunity in North America.
“We believe Trustpilot is an attractive European asset given its unique market position and solid growth prospects.”
With more detail on that market, Berenberg noted that Trustpilot’s serviceable, addressable market is US$18.8bn across the UK, the US and Europe in the 12 verticals it currently serves.
Expanding its product suite, end-market vertical and global geographic reach would increase the total addressable market (TAM) to circa US$50bn, even excluding China, according to Berenberg.
“While the market is, and will remain, highly competitive, we believe Trustpilot is well placed due to its unique offering stemming from: (1) it being the only two-sided platform with a clear consumer proposition; (2) its superior consumer reach and engagement; and (3) the strong network effects of its platform fuelling both client outcomes and its own growth,” the Berenberg analysts said.
Trustpilot generated a group LTV/CAC ratio (Customer Lifetime Value to Customer Acquisition) of 3.4x and a gross margin of 82% last year, according to the German bank’s analysts, compared to its LTV/CAC in the UK of 5.2x, a UK gross margin of 85% and an incremental gross margin of 93% in the same period.
As market penetration grows and its customer base matures, particularly in its early-stage markets such as the US, Berenberg expects unit economics will continue to improve, which drives a forecast for material gross and EBITDA margins to 90% from 83.5% and to 27% from 13% by the 2025 financial year.
Berenberg started with a ‘buy’ rating and a 385p price target.
Morgan Stanley, meanwhile, also initiated coverage with a 350p price target but with just an ‘equal-weight’ rating.