If you've been to your local restaurants a lot lately, there's a good chance you've come across one. toast's (TOST 2.42%) Use the POS system when paying your bills. After all, the company's systems are now installed in more than 100,000 of his locations across the United States, and growing. But that's just one part of Toast's restaurant platform.
The real benefit of the Toast platform is that it makes it easier for restaurant owners to run their entire business. The company offers modules for a variety of needs, from employee payroll and supply chain management to digital ordering, loyalty and marketing programs.
history of innovation
Toast has a strong history of innovation since its founding in 2012. Originally his POS platform was based on Android tablets, since then the company has been at the forefront of restaurant technology, constantly introducing new software and hardware solutions to better serve restaurant customers. Masu.
Recent offerings include Toast Delivery Service, which allows restaurants to dispatch local drivers through an on-demand network for delivery orders. Toast Invoicing creates and sends digital invoices that you can pay online. Toast Mobile Order & Pay allows guests to browse the menu, order, and pay from their mobile device by scanning their QR code.
Why is this important? There are several reasons. For one, Toast's innovative and integrated platform has made it one of the industry's top restaurant technology platforms, helping restaurants attract new customers. The company added approximately 27,000 new locations to its platform in 2023.
Many of Toast's services are designed to help restaurants increase sales. As a payment processor, Toast receives approximately 0.45% from each transaction it processes. So, the more sales your restaurant generates, the more revenue Toast generates. This allows Toast to participate in the success of its clients.
Each module is not free, so the more modules restaurants use, the more Toast earns. At the end of 2023, 43% of restaurants using Toast had six or more add-on products. This is up from 41% a year ago.
Image source: Getty Images.
A long runway for future growth
Toast is used by over 100,000 restaurants, and with approximately 750,000 restaurants in the US alone, there's a lot of growth potential. Toast has traditionally focused on local and regional full-service restaurants, but has also expanded into adjacent areas. The company has released specific modules designed for coffee shops and bakeries, hotel restaurants, and quick-service restaurants.Already got a deal marriott and choice hotels There is Caribou Coffee in the hotel space and Caribou Coffee in the coffee shop space.
Toast is also beginning to lay the groundwork for expansion internationally. By 2023, we will have approximately 1,000 locations across the UK, Ireland and Canada. The company says it sees similar competitive dynamics in Europe as in the U.S., but an increasing number of locations are installing older legacy systems. This looks like a big opportunity for Toast.
The company is also discussing price increases given the platform's enhancements over the years. We plan to roll this out in the second half of this year, which should further drive growth in 2025. However, Toast management does not view this as a one-time increase and believes it can improve take rates and pricing. over time. Not only will the price increase help increase revenue, but given that there is little to offset the increase in expenses, profits should increase even more.
Great buy for long term investors
Toast is growing rapidly, as evidenced by its 42% revenue growth in 2023. Many of the fastest growing software companies are valued based on multiples of sales, but Toast is a bit trickier because many of the financial technology revenues it reports are high. Pass-through revenue sent to payment processing networks.
Toast reports a metric called Annual Recurring Revenue (“ARR”). This is high-margin software subscription revenue and financial technology services gross margin. This essentially removes the pass-through element of financial technology revenue.
Based on this metric, the company expects ARR to increase 35% to $1.2 billion in 2023. We expect ARR to increase 23% to 25% this year, totaling $1.3 billion to $1.32 billion. The company's market capitalization is approximately $13 billion, and the expected price/sales multiple is approximately 10 times.
Toast isn't the cheapest stock, but great growth companies are rarely the cheapest stocks. With a strong history of innovation and a long path to growth, Toast should be a long-term winner for investors.
