Enterprise Focus And New Products Will Boost Future Profitability

Key Takeaways

• Trustpilot's product innovation and pricing strategies enhance retention and future revenue growth, alongside strong market expansion, particularly in the U.S.
  
• Increased profitability is driven by operating leverage and a strategic shift towards enterprise clients with higher value contracts.
  
• Foreign exchange volatility, growth deceleration, competition, macro-economic uncertainties, and innovation challenges could collectively strain Trustpilot's revenue stability and operational efficiency.

Catalysts

Engages in the development and hosting of an online review platform for businesses and consumers in the United Kingdom, North America, Europe, and internationally.

• Trustpilot's SaaS business model is supported by product innovation, resulting in new product launches within pricing plans that have improved net dollar retention from 99% to 103%, which is expected to drive future revenue growth.
  
• Bookings have grown by 21% in constant currency, particularly with strong growth in key markets like the U.S., which saw a 26% increase. This growth is expected to sustain revenue increases in the future.
  
• Consumer adoption of Trustpilot is strong, with active reviews up by 23% and TrustBox impressions up by 19%, enhancing brand awareness and potential earnings through increased engagement.
  
• Operating leverage has led to a 260 basis point increase in adjusted EBITDA margin to 11.4%, which signals an expectation of improved profitability going forward.
  
• Strategic focus on enterprise clients and higher service packages is shifting the customer mix towards higher contract values, likely improving the company’s net margins and overall revenue.

Trustpilot Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Trustpilot Group's revenue will grow by 16.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.0% today to 6.4% in 3 years time.
• Analysts expect earnings to reach $21.1 million (and earnings per share of $0.05) by about April 2028, up from $6.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $27.2 million in earnings, and the most bearish expecting $15.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 102.3x on those 2028 earnings, down from 185.4x today. This future PE is greater than the current PE for the GB Interactive Media and Services industry at 23.8x.
• Analysts expect the number of shares outstanding to decline by 0.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.77%, as per the Simply Wall St company report.

Trustpilot Group Future Earnings Per Share Growth

Risks

• The impact of foreign exchange volatility, particularly with the euro and sterling against the dollar, could adversely influence reported revenue despite strong bookings growth, affecting earnings.
  
• The anticipated deceleration of growth, following the one-time benefit from migrating customers to new pricing plans, could challenge sustained revenue growth if not compensated by upsells within the new pricing bands, impacting future revenue stability.
  
• Increasing competition and evolving market dynamics could strain Trustpilot's ability to maintain high retention rates and expand market share, potentially impacting net margins if customer acquisition costs rise relative to revenue.
  
• Macro-economic uncertainties, like inflation or downturns, particularly in the U.S., could affect SME clients more significantly, leading to higher churn rates and impacting overall revenue and financial projections.
  
• The need to continuously innovate while minimizing distractions from new ventures such as TrustLayer could strain resources, which may affect operational efficiency and net earnings if not managed effectively.

Valuation

• The analysts have a consensus price target of £3.307 for Trustpilot Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £4.22, and the most bearish reporting a price target of just £2.03.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $332.0 million, earnings will come to $21.1 million, and it would be trading on a PE ratio of 102.3x, assuming you use a discount rate of 7.8%.
• Given the current share price of £2.16, the analyst price target of £3.31 is 34.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.