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Companies we’ve met: Trustpilot – The Henderson Smaller Companies Investment Trust

A recent addition to The Henderson Smaller Companies portfolio, Trustpilot, underscores the importance of company meetings after undergoing a rapid transformation…

Company meetings are a key step in how we choose stocks for The Henderson Smaller Companies Trust. Meetings bring several advantages. We can ask questions, for example clarifying a company’s strategy or results. We build an understanding of the personalities and experience of individuals managing a business. Sometimes we even get to see the company itself in action.

One recent addition to the portfolio captures the benefit of such meetings. Trustpilot hosts reviews for businesses worldwide. The company was first listed in 2021.

The promise and pitfalls of the freemium model

Trustpilot operates a “freemium” model, meaning that its basic reviewing platform is free for a certain number of reviews. Beyond this, companies can pay for various additional services, such as embedding the reviewing system into their own website and emails, or receiving analytics and insights based on their reviews.

It became clear to us that there was scope for the premium tier to grow significantly, with a large potential market. However, when we originally met  management during the IPO we were concerned by a slightly unfocused strategy, which wasn’t maximising this potential. For example, the company was seeing significant “churn” among its customers. Its customers were cancelling contracts, rather than renewing them.

Change at the top

The company’s management and board have both been refreshed over the last two years. Individuals have been brought over from established online businesses, including a new Chief Executive Officer, Chief Revenue Officer, and a new Chief Technology Officer.

We met Trustpilot’s management again in early- 2024 and were encouraged to open a position based in part on the changes they had made.

The company has simplified its pricing structure, reducing the range of options available from eight to four. Simultaneously, the scope of the “free” tier has narrowed from 100 reviews per month to 50.

Alongside rationalising the pricing on offer, Trustpilot has also expanded its product features, launching six in 2024. These included customising review pages and responding to reviews using AI. While these features are not necessarily designed to encourage new sales or upselling, they could explain some of the improvement in retention rates.

Change in action

The results of these tweaks speak for themselves. Retention rates – meaning the number of customers who renew their contracts at the same, or higher, price – are above 100%. The number of 12-month contracts agreed rose 19% in the first half of its financial year. All of these numbers are positive, for a business that already had a compelling product offering.

As such, we have added Trustpilot to our portfolio. We are not naïve; the company has challenges including the risk of new competitors coming to the market or of its credibility being undermined by inaccurate reviews.

Nonetheless, we believe its refocused business model could prove a driver for its share price in the years to come.

 

 

Glossary

Portfolio

A grouping of financial assets such as equities, bonds, commodities, properties or cash. Also often called a ‘fund’.

Share price

The price to purchase (or sell) one share in a company, not including fees or taxes.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

 

Before investing in an investment trust referred to in this article, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

There is no guarantee that past trends will continue, or forecasts will be realised.

 

Marketing Communication.

 

Glossary

 

 

 

Important information

Please read the following important information regarding funds related to this article.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. This is a marketing communication. Please refer to the AIFMD Disclosure document and Annual Report of the AIF before making any final investment decisions.
    Specific risks
  • Some of the administrative expenses are taken from capital. This allows more income to be paid but it may also restrict capital growth or even reduce the capital over time.
  • Derivatives may be used with the aim of reducing risk or managing the portfolio more efficiently. However, this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • Losses could be incurred if a counterparty became unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
  • If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk (as well as the potential for greater reward) than a portfolio that is diversified across more countries.
  • This investment should be held as part of a broader diversified portfolio. Balancing it with investments that have different risk profiles can help reduce the impact of any single investment underperforming.
  • The Company may borrow to invest, which could magnify gains or losses.
  • As the Company may borrow to invest, changes in interest rates could increase or decrease the cost of any borrowings.
  • The Company follows a growth investment style that creates a bias towards certain types of companies, which may result in the Company underperforming or outperforming the wider market.
  • The Company invests in the shares of other companies. These shares may become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
  • Your return on investment is directly related to the market price of the Company's shares, which may be higher (trading at a premium) or lower (trading at a discount) than the value of its underlying net asset value assets. This means your returns may differ from the performance of those assets.
  • While active management techniques are typically positive for performance, this approach may also result in periods of underperformance relative to the benchmark and comparable passive and index-tracking funds, particularly during unexpected market shifts.
  • Shares can gain and lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may rise and fall in line with the underlying equity markets.
  • If the companies in which the portfolio is invested persistently reduce their dividend payments, the Company will find it more difficult to maintain or grow its own dividend payments each year.
  • The Company maintains a portfolio with a bias towards income-generating companies. This may result in the Company significantly underperforming or outperforming the wider market.
  • The portfolio invests in smaller company shares, which may be more difficult to buy and sell, and their share prices may fluctuate more than those of larger companies.

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