toast (NYSE: TOST) has been in business for nearly a decade and wasn’t publicized until late 2021. In this segment of Backstage ID, accepted at December 13, Fool associate Danny Vena explains the company’s core business model and recent financial results.
Danny Vena: I’ll start with – I’m a little fascinated by the company I’m going to talk about. That’s a company called Toast, ticker TOST. For those who are new to toast. This is not what I was trying to do. I’m trying to get to the present button here and hit the wrong one. Toast is a company that has developed a cloud-based system for the hospitality industry.
If you’ve worked in a restaurant before, you probably know that there is a single workforce management software system. You have a different software system for ordering items for inventory.
They have another system for digital ordering from customers. They have a different system if they are – for marketing or for team management. Every restaurant really has a collection of different software to deal with and none of them talk to each other. This is where toast comes in. Toast has developed this cloud-based software system that really covers all different areas of the restaurant industry.
She takes care of guest orders and payment processing, coordinates the kitchen and operation and manages the employees. It can also do marketing and loyalty and team management. This really is a chance to grow in the hospitality industry.
It is also interesting that in companies such as DoorDash taking care of the food delivery for them, these restaurants. One of the things that I found really compelling was that By the time it went public in September, Toast had become the premier food service platform.
Still, it only serves about 6% of the more than 860,000 restaurants in the United States. That gives you an idea of how fragmented the market is. I want to look at a few metrics here. Well, I want you to notice: look how far Toast has gone since it went public.
It really doesn’t seem to be doing that well, and if your investment decision was based on its stock price, you’d say, “Look how far this stock has fallen. I certainly don’t invest in it.” But if you look at sales growth, third-quarter sales were up 105% year over year. $ 544 million annual recurring revenue, up 77%. Gross Income, $ 83 million, up 72%. So it looks like all financial metrics are going in the right direction.
Now you come, of course, to a company that is a software-as-a-service platform with a net loss of $ 253 million. No wonder a software-as-a-service business is not yet profitable.
The company currently serves approximately 48,000 restaurant locations, and 56% of those locations use four or more of their products. You start with the Toast payment processing system. This is really what got that on my radar.
My wife and I went here at Comic-Con a couple of weekends ago. And it seemed like in every restaurant we went to when they brought the payment machine I saw toast downstairs. And it happened more often than not. Probably, I would say, five out of six times we’ve been to a restaurant we’ve used the toast operating system. So that really piqued my interest.
You use payment processing is an example of one of the segments. But if you want to use the back office part of it to plan your staff, that’s another part of the product.
If you want to use it to control your inventory, that’s another part of the product. There are many different segments that restaurateurs can choose from and they get their foot in the door with payments processing.
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