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In my opinion, investing is one of the most important things that any person can do. And having a Stocks and Shares ISA is one of the wisest ways to do it.
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Sometimes, I like to take on a little more risk with a newer company that offers higher growth prospects. I think Trustpilot (LSE:TRST) could perform quite well.
My perspective on the business model
I’ve used the services many times before, and I think it does one of the best jobs at reviewing businesses in a user-friendly fashion.
The company structures itself around a freemium model. Businesses can get many of the benefits of Trustpilot for free, but when they want to take their marketing efforts and brand recognition to the next level through Trustpilot, they are introduced to a subscription fee for advanced features.
However, it faces a lot of competition. For example, Yelp, Google Reviews, TripAdvisor, and Facebook Reviews all vie for a share of the online review market. Other than the fact that it has built a trusted platform with the public, I think that well-financed upstarts could replicate what it is doing quite easily, even potentially improving upon it.
Lasting profitability is on the horizon
This is a younger company. So, investors can’t expect its financials to look as stable as those of more time-tested peers. Trustpilot had its initial public offering in just 2021.
Given that it’s common for newer firms to be operating at a loss for some time, I’ve been pleased to notice that last year, it reported profitability for the first time since going public.
It’s Trustpilot’s immense growth that has given it room to drive home some earnings recently. In fact, the last annual report mentioned that between 2017 and 2022, the company had achieved 40% compound annual growth in total cumulative reviews and 23% compound annual growth in annual recurring revenue.
With it delivering growth like that and hinting at lasting profitability on the horizon, I’m slightly tempted to invest in the company.
Trustpilot has to navigate technology changes
One of the largest issues that could arise if I invest in Trustpilot is how search engine algorithms change.
At the moment, business websites that show customer ratings, like those provided by Trustpilot, tend to appear higher in Google search results. As you can imagine, this makes services like Trustpilot even more valuable to companies that want good search engine optimisation. So, if the algorithms change, which may happen with the advent of AI driving new demand for information gathering, Trustpilot could see a slowdown in growth.
It’s on my watchlist
This is a company that deserves to be on my watchlist. I think that its future is very bright.
However, as I mentioned, I’m not sure how unique its offering is. I prefer to invest in really hard-to-replicate inventions that I believe will stand the test of time.
I think what Trustpilot is offering is quite simple, which can also make for a great company. But I don’t expect it to be one of the best-performing investments in the world. It’s simply not groundbreaking enough. That’s why I’m staying on the sidelines for now.
