Imagine savoring a delectable meal at your local restaurant, and as you settle your bill, you encounter Toast‘s (NYSE: TOST) innovative point-of-sale system. With a widespread reach surpassing 100,000 locations nationwide, Toast is reshaping the restaurant industry landscape with its robust platform. But there’s more to Toast’s offering than meets the eye.
Behind its sleek interface lies a powerhouse platform empowering restaurant owners to streamline their operations seamlessly. From managing employee payroll to optimizing supply chain logistics and implementing digital ordering systems and loyalty programs, Toast’s multifaceted modules cater to a plethora of restaurant needs.
Trailblazing a Legacy of Innovation
Established in 2012, Toast has carved a reputation for pioneering innovation in the restaurant tech sphere. Originating as a point-of-sales system anchored on Android tablets, the company has consistently introduced cutting-edge software and hardware solutions, setting new benchmarks for service excellence in the industry.
Recent offerings like Toast Delivery Services, enabling restaurants to dispatch local drivers for delivery orders, and Toast Invoicing, facilitating seamless digital invoicing and online payments, underscore Toast’s commitment to advancing technological solutions for its clientele.
What’s the significance of these advancements? For one, Toast’s integrated and forward-thinking platform has propelled it to the forefront of the restaurant tech sector, attracting a surge of new customers. In 2023 alone, the company onboarded approximately 27,000 new locations to its platform, a testament to its growing influence.
Many of Toast’s services are designed to drive revenue for restaurants. Acting as a payment processor, Toast garners approximately 0.45% from each transaction processed, aligning its revenue growth with that of its clients. By offering a range of paid modules, Toast’s earnings scale with the number of services availed. Notably, by the end of 2023, 43% of restaurant locations utilizing Toast had invested in six or more add-on products, a notable uptick from the previous year.
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Paving the Path for Future Growth
Despite its footprint in over 100,000 restaurants, Toast’s growth trajectory is far from peaking, with approximately 750,000 restaurants in the U.S. alone ripe for exploration. While historically centered on local and regional full-service restaurants, Toast has diversified its offerings by tailoring modules for coffee shops, bakeries, hotel restaurants, and quick-service eateries. Noteworthy contracts with renowned brands like Marriott, Choice Hotels, and Caribou Coffee underscore Toast’s expanding presence across varied market segments.
Venturing into international markets, Toast concluded 2023 with around 1,000 locations in the U.K., Ireland, and Canada. The company envisions vast opportunities in Europe, characterized by similar market dynamics to those in the U.S., albeit with a larger share of establishments reliant on outdated legacy systems. This signals a lucrative terrain for Toast to capitalize on.
Bolstered by ongoing platform enhancements, Toast is contemplating price hikes slated for the latter half of this year, aimed at propelling growth into 2025. Contrary to viewing this as a one-time adjustment, Toast’s management foresees a sustainable escalation in its take rate and pricing strategies, poised to drive not just revenue but bolstered profits, with minimal offsetting hikes in expenses.
An Appetizing Pick for Long-term Investors
Evidenced by its 42% revenue surge in 2023, Toast’s rapid expansion sets it apart in the competitive landscape. While many high-growth software ventures are appraised based on sales multiples, Toast’s financial technology revenue model presents a nuanced evaluation, given a substantial portion funnels into payment processing networks.
Reporting under the metric of annual recurring revenue (“ARR”), encompassing high-margin software subscription revenue and financial technology service gross profits, Toast witnessed a robust 35% ARR growth to $1.2 billion in 2023. Projections hint at ARR scaling by 23% to 25% this year, nearing $1.30 billion to $1.32 billion. With a market cap hovering around $13 billion, Toast trades at an approximately 10x forward price-to-sales multiple.
While Toast may not be the most budget-friendly stock, stellar growth companies seldom are. Backed by a rich legacy of innovation and an expansive growth trajectory, Toast emerges as a promising contender for long-term investor portfolios.
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Geoffrey Seiler has stakes in Toast. The Motley Fool holds positions in and commends Toast. Marriott International gets a nod from The Motley Fool. The Motley Fool vows by a strict disclosure policy.
Opinions expressed are solely those of the author and do not reflect Nasdaq, Inc.’s viewpoint.
