The Expanding Reach of Toast’s Restaurant Technology

In 2011, a triumvirate of acquaintances embarked on a mission to revolutionise the restaurant industry by introducing cloud-based technology solutions through their enterprise, Toast. Fast forward to 2023, and Toast has observed a remarkable surge from 1,000 to 99,000 restaurant locations utilising its products. This exponential growth is indicative of the quality and appeal of Toast’s offerings, positioning it as a formidable contender in its sector.

Nevertheless, as Toast continues to expand, it encounters substantial costs. The company’s hardware revenue has reached $106 million, but the cost of revenue for hardware stands at a substantial $181 million, resulting in a gross loss of $75 million. Additionally, sales and marketing expenses totalled $299 million, highlighting the high costs associated with expanding its enterprise. This cost-intensive expansion has led to a net loss of $210 million year-to-date and a trailing-12-month net loss of $310 million.

Despite these financial challenges, there is optimism for the future. Toast has only captured 10% of the market share in the U.S., leaving ample room for further growth both domestically and internationally. The company’s subscription software services, with a 67% gross margin, have shown impressive growth, reaching $131 million in Q3 and accounting for nearly 13% of total revenue.

For investors, Toast’s current state may not appear enticing due to the associated expenses and ongoing losses. However, as the company’s growth eventually stabilises, its high-margin recurring revenue streams are expected to drive profitability. Although there is a level of risk involved, holding Toast stock in a diversified portfolio could yield positive results, should the company’s potential for increased profits materialise as anticipated.

In conclusion, as Toast continues to expand its reach and market share, investors may find potential value in its stock. While there are inherent risks, the company’s future prospects and high-margin revenue streams make it an intriguing option for those with a long-term investment outlook.