Toast's (NYSE: TOST) point-of-sale system may have appeared on your bill at a local eatery. After all, the company's system is in over 100,000 U.S. sites and growing. This is simply one aspect of Toast's restaurant platform. Toast makes restaurant owners' operations easier to run, which is its beauty. The company offers payroll, supply chain, digital ordering, loyalty, and marketing modules.
A history of invention Toast has innovated since its 2012 founding. Since its launch as an Android tablet-based point-of-sale platform, the firm has led restaurant innovation by releasing innovative software and hardware to better serve customers.
Toast Delivery Services, Toast Invoicing, and Toast Mobile Order & Pay allow guests to scan a QR code to browse a menu, order, and pay from their phones. Why does it matter? There are several reasons. One is that Toast's creative and integrated platform has made it one of the top restaurant tech platforms, attracting new consumers. 2023 saw 27,000 new venues on the platform.
Toast helps restaurants boost revenue with many services. Toast charges 0.45% for payment processing. Thus, Toast profits increase with restaurant revenues. Toast shares in client success. Each module costs money, thus the more a restaurant accepts, the more Toast makes. 43% of Toast restaurants had six or more add-ons in 2023. This was up from 41% last year.
Toast is in more than 100,000 restaurants, but with 750,000 U.S. eateries, it has room to grow. Toast has focused on local and regional full-service restaurants but is expanding into nearby locations. Modules are available for coffee shops, bakeries, hotel restaurants, and quick service restaurants. Marriott, Choice Hotels, and Caribou Coffee are among its hotel and coffee shop partners.
Toast is also preparing for worldwide expansion. About 1,000 U.K., Ireland, and Canadian locations existed in 2023. The company says Europe has similar competitive dynamics to the U.S., but more locations use legacy systems. This seems like a big chance for Toast.
After years of platform improvements, the corporation has discussed raising prices. It plans to launch this in the second half of the year to boost growth in 2025. Toast's management believes it can enhance its take rate and pricing over time. Given that expenses should not rise, price rises should boost profits even more.
Good buy for long-term investors Revenue rise of 42% in 2023 shows Toast's rapid expansion. Toast is a little trickier to value than other fast-growing software startups because much of its financial technology income goes to payment processing networks.
Toast calculates annual recurring revenue ("ARR") from its high-margin software subscription income and financial technology service gross margins. This removes its financial technology pass-through revenue.
In 2023, ARR rose 35% to $1.2 billion. ARR is expected to climb 23% to 25% this year to $1.30 billion to $1.32 billion. The company trades at 10x ahead price-to-sales with a $13 billion market cap. Toast stock isn't cheap, but growing stocks rarely are. Toast should be a long-term investor winner because of its innovation and expansion potential.
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