Shares in Trustpilot Group PLC (LSE:TRST) fell 11% after Panmure Liberum issued a 'sell' recommendation, citing significant risks in the company’s strategy.
While currently popular among small and medium-sized enterprises (SMEs) for boosting brand credibility through customer reviews, the company is looking to shift focus towards larger corporate clients.
In doing so, it aims to reduce customer churn and secure more stable, high-value contracts, but it brings complex execution challenges, analysts warned.
According to Panmure, large enterprise contracts involve prolonged sales processes, including negotiations with procurement teams, customisation requests, and intricate internal approvals.
These complexities increase operational costs and pressure margins.
The broker also raised concerns over Trustpilot’s current valuation, arguing it anticipates decades of flawless execution.
Trustpilot’s enterprise value to earnings before interest and taxes (EV/EBIT) ratio is projected to be an ambitious 43.5 times for 2025, implying high expectations from investors.
Further concerns stem from macroeconomic uncertainties, particularly in the US market. Trustpilot has limited experience managing downturns, and current weak US consumer sentiment may adversely impact its revenue.
Additionally, the tech company's planned move into the competitive customer experience market introduces further challenges.
Established players such as Qualtrics and Medallia offer more comprehensive solutions, potentially limiting Trustpilot's competitive position unless significant additional investments or strategic acquisitions are made.
Given these factors, Panmure set a cautious target price of 200p, indicating approximately 15% downside from current levels. This valuation reflects doubts over Trustpilot’s ability to successfully manage its strategic shift amid broader economic pressures.
In late morning trading, the stock was off 25p at 211.6p.