Interactive Investor

Why Trustpilot shares just plummeted to new low

22nd March 2022 13:09

Graeme Evans from interactive investor

Some well-known businesses are struggling in the early stages of life as a public company, and this pair more than others. 

The IPO euphoria of 2021 now feels like a distant memory after Trustpilot Group (LSE:TRST) shares today hit a new record low and Oxford Nanopore Technologies (LSE:ONT) dipped below its launch price.

The pair, whose shares slid 17% and 8% respectively in the wake of their annual results, are far from alone in seeing their valuations struggle to match expectations at their flotations.

The Deliveroo (LSE:ROO) listing flop is well known — its shares are now down 68% at 122p — but several other high-profile debutants are well below their opening prices. They include Dr Martens (LSE:DOCS) and Moonpig (LSE:MOON) at more than a third lower and Alphawave IP (LSE:AWE) off 57%.

The selling pressure has accelerated as expectations for rising interest rates diminish the appeal of stocks whose valuations are built around strong future cash flows. Inflation pressures mean the outlook for consumer spending is also far from rosy.

One stock that stands out in the class of 2021 IPOs has been Auction Technology Group (LSE:ATG), with shares up 73% in the FTSE 250 index. Darktrace (LSE:DARK) is 79% higher, but this masks a volatile performance and its lower-than-expected IPO price following the Deliveroo debacle.

These are still early days, with many of these newcomers still attracting plenty of City support. But what’s hard to take for retail investors is that most IPO prices were only available to institutional investors, many of whom made a swift profit. The rest were left to pay much higher levels once unconditional dealings got underway a few days later.

Oxford Nanopore performance

Gene sequencing firm Oxford Nanopore, for example, jumped from 425p on the first day of conditional dealings to 612.6p and stood at 598p by the start of unconditional dealings.

It peaked at 736p in December but now stands at 403.5p after today’s results wiped another 38.5p from the share price. Annual revenues rose 17% to £133.7 million in the maiden results and the company also raised its guidance for the next two years, but this was not enough to offset concerns at a wider loss of £167.6 million. Its results included £4.8 million of IPO costs.

The company, which chose a London listing rather than follow other biotechs onto the Nasdaq, said there were “extraordinary opportunities” ahead after reporting a substantial increase in its user base and utilisation of nanopore sequencing in life science research.

Chief executive Gordon Sanghera said: “We remain focused on our mission to bring the widest benefits to society through the analysis of anything, by anyone, anywhere.

“The progress we have made over the last year, combined with the new capital raised in our IPO, puts us in a strong position to achieve this goal.”

Lack of faith in Trustpilot

Trustpilot’s results-day slump came on the eve of its first anniversary as a stock market company. The consumer reviews business was worth £1.1 billion when its shares were priced at 265p before hitting a high of 481.8p in early September.

The shares now trade at 136p, even though the company pointed out today that it has outperformed the guidance given at the time of its stock market debut for “high teens” growth in constant currency revenues.

It ultimately achieved growth of 24% year-over-year to $131 million (£99 million), representing an improvement on the 23% growth in 2020.

The Copenhagen-based group, which generates around 41% of its bookings in the UK,  reported a wider loss for the year of $25.9 million (£19.6 million) and spooked the City by forecasting a higher proportion of costs in 2022 due to investment and inflation.

This will lead to underlying losses in the current year but the investment should benefit the longer-term outlook through stronger bookings growth from next year.

Peel Hunt has a price target of 325p, while analysts at Goodbody are supportive of the company’s strategy: “We continue to view Trustpilot as a leading platform in the review market and with the size of the market at play and its intentions to invest for growth, we view it as particularly well positioned despite the aggressive sell off.”

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