Toast’s software is used by 156,000 restaurants to accept payments, handle orders and manage inventory.
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Toast, a fintech based in Boston which makes restaurant software for accepting payments and managing orders, is the largest company in its industry, with a market share of 15% and a market value of $22 billion. It is also the fastest growing, yet its stock performance this year tells a different story.
On its third-quarter earnings call yesterday, Toast said revenue was $1.6 billion, up 25% from a year ago, and net income was $105 million, up 88%. The results easily beat Wall Street analysts’ expectations, according to FactSet. While its stock is trading up 10% today, it’s only 7% higher than where it closed last year despite consistently strong growth.
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A major long-term concern weighing on the stock is the same one affecting other fintechs like Chime: Investors worry that the heady expansion can’t go on forever. “This question has been around for years,” says Nate Svensson, an analyst at Deutsche Bank. Comparing Toast’s market value to its earnings, its stock is one of the most expensive in the entire payments industry, Svensson says.
So investors have focused on one key metric – how many new restaurants Toast brings in as customers. In the third quarter, it added 7,500, in line with analysts’ expectations, bringing its total to 156,000 locations.
Toast co-founder and CEO Aman Narang said on the earnings call that his 13-year-old company is on track to double the number of customer sites and annual payments it processes, without specifying over what timeframe. During the question and answer portion of the conference call, Wolfe Research analyst Darrin Peller asked Narang, “What gives you confidence in your ability to see increased net [location] does it add 2026?’ The CEO responded that growth will largely come from new segments Toast is targeting outside of its core US small and medium-sized business market: large chain restaurants, “retail restaurants” (food and beverage outlets such as wine shops), and international restaurants.
One factor that could limit its growth is that Toast faces formidable competition, particularly from Shift4, Jack Dorsey’s Block, and Fiserv’s Clover, which is now slashing its prices. Last week, during Fiserv’s earnings call, the company announced it was cutting revenue and earnings expectations, dragging its stock down 47% and taking other paying stocks with it. On the day, Toast and Block each fell 5% on fears of a broader industry slowdown.
Asked yesterday about the competition, Narang said Toast’s win rate is increasing as it competes with other software vendors and that the quality of the product differentiates it.
Another dynamic that has Wall Street on edge is the health of the American consumer. Inflation continues to weigh on people’s wallets and hiring is slow. Last week, Chipotle said younger consumers and households earning less than $100,000 are eating out less, and shares of Shake Shack, Sweetgreen and Cava have fallen over the past year. Narang said consumer spending in October was down slightly from the summer months, but so far, his figures show “our customers are holding up very well”.
