Do you enjoy eating out? You may have noticed recently that more and more restaurants have new equipment for taking orders and accepting payments, whether it’s fast food or sit-down dining.
What you don’t see is what happens behind the scenes and how the hardware is connected to the software that automates most of a restaurant’s operations. Establishments that use these automated platforms can operate more efficiently and save money, which is a given in today’s digital age.
Grill (NYSE: TOST) is one of the most popular and fast-growing versions. Its stock price has fallen 57% since its IPO, and now may be a great time to buy shares.
The Case of Toast
Toast has experienced strong growth since its inception initial public offering In 2021, the company maintained this level despite inflation. Annual recurring revenue, its preferred revenue growth metric, increased 32% year over year in the first quarter of 2024, and gross payment volume (GPV) increased 30%.
The company continues to add restaurants at a rapid pace: 6,000 signed up in the first quarter and ended the quarter with 112,000 restaurants, a 28% increase from last year. It has 13% of all U.S. restaurants on its platform. That’s a testament to its popularity, but it leaves the vast majority of restaurants unavailable.
Management has identified several growth opportunities and is already investing in them. It continues to add sites to its core business at a steady pace, with 20% of new sites coming from referrals.
In one case study, 70% of restaurants that opened last year in Austin, Texas, opted for Toast’s platform. Existing restaurants may be slower to change strategy, but as new restaurants open with digital infrastructure, they will choose a platform like Toast.
In this category, the company continues to launch new products to drive higher spend from its existing customers, such as the recent launch of Digital Storefront and Marketing Suites. Another way to grow in this area is to provide services at the enterprise level in addition to the restaurant level, with multi-site solutions like menu management.
The company is also starting to target international markets. Toast currently has only 2,000, but its market is estimated at more than 280,000.
Finally, the company is testing a new product aimed at food retailers, such as supermarkets. It is based on the same automated technology that powers its restaurant software and offers services targeted at food retail, such as inventory optimization and e-commerce integration. It currently has 1,000 sites, a fraction of the total market.
Why is Toast down?
Toast isn’t profitable, but it’s making progress toward that goal. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved from a loss of $17 million last year to a positive $57 million this year, but its net loss widened from $81 million to $83 million. There were other positive indications, including a 43% increase in gross profitand management…
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