Restaurant software platform Toast (NYSE:TOST) met Wall Street’s third-quarter 2024 revenue expectations, with revenue up 26.5% year over year to $1.31 billion. GAAP earnings of $0.07 per share were 392% above analyst consensus estimates.
Is Now the Time to Buy Toast? Find out in our full research report.
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Gain: $1.31 billion vs. analyst estimates of $1.29 billion (in line)
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EPS: $0.07 vs. analyst estimates of $0.01 ($0.06 better)
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EVENTS: $113 million vs. analyst estimates of $78.53 million (43.9% better)
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Full year EBITDA guidance is in the middle at $357 million, above analyst estimates of $305.2 million
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Gross margin (GAAP): 24.7%, compared to 22% in the same quarter last year
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Operating margin: 2.6%, compared to -5.7% in the same quarter last year
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EBITDA margin: 8.7%, compared to 3.4% in the same quarter last year
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Free cash flow margin: 7.4%, compared to 8.7% in the previous quarter
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Annual recurring turnover: $1.55 billion at the end of the quarter, up 27.6% year over year
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Market capitalization: $18.06 billion
“Toast delivered a strong third quarter, with approximately 7,000 net new locations, growing our recurring gross profit streams1 by 35% and Adjusted EBITDA of $113 million. We are well positioned to finish the year strong and continue this momentum into 2025. Our differentiated vertical software platform is the foundation of that success, and we continue to innovate to deliver more value to our customers: this fall we launched new products such as Branded mobile app and SMS marketing in addition to more than a dozen feature updates,” said Toast CEO and co-founder Aman Narang.
Founded by three MIT engineers in a local bar in Cambridge, Toast (NYSE:TOST) provides integrated point-of-sale (POS) hardware, software and payment solutions for restaurants.
Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) are two of the largest software categories dominated by companies like Microsoft, Oracle and Salesforce.com. Today, the secular trend of mass customization is driving vertical software that tailors ERP and CRM functions to specific industry requirements. Restaurants are a prime example as a range of custom software vendors have emerged in recent years to create unique operating systems that combine tax and accounting software, order management and delivery with supply chain management. Hotels and other catering providers are another example.
A company’s long-term performance is an indicator of overall business quality. While any company can experience short-term success, the best performers can experience sustained growth for several years. Over the past three years, Toast has grown its revenue at an incredible annual growth rate of 48.1%. This is encouraging as it shows that Toast’s offering is resonating with customers, which is a useful starting point.
This quarter, Toast’s year-over-year revenue growth was excellent at 26.5%, and revenue of $1.31 billion was in line with Wall Street estimates.
Looking ahead, sell-side analysts expect revenue to grow 23% over the next twelve months, a slowdown from the past three years. Still, this projection is remarkable and shows that the market is achieving success with its products and services.
Here at StockStory, we certainly understand the potential of thematic investing. Several winners, from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST), could all have been identified as promising growth stories with a megatrend driving growth. So in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefiting from the rise of AI, which is available to you for FREE at this link.
Investors interested in Toast should track annual recurring revenue (ARR) in addition to reported revenue. While reported revenue for a SaaS company may include low-margin items such as implementation costs, the ARR is a sum of the next twelve months of contracted revenue purely from software subscriptions, or the predictable, high-margin revenue streams that make SaaS companies so valuable. to make.
Over the past year, Toast’s ARR growth has been fantastic, up an average of 31% year-over-year and up $1.55 billion in the last quarter. This performance was in line with revenue growth and shows that customers are willing to bet on the company’s technology for several years to come. The growth also makes Toast a more predictable company, which is a tailwind for its valuation as investors typically prefer companies with recurring revenues.
Customer acquisition cost payback period (CAC) measures the months it takes a company to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a company can break even on its sales and marketing investments.
It is relatively expensive for Toast to acquire new customers, as the CAC payback period this quarter is 101.6 months. The company’s performance indicates that it operates in a competitive market and must continue to invest to continue its growth trajectory.
We were impressed by Toast’s optimistic EBITDA forecast for next quarter, which exceeded analyst expectations. We were also pleased that gross margin improved. On the other hand, ARR (annual recurring revenue) fell short of analyst expectations. Zooming out, we think this was a solid quarter. The stock rose 20.7% to $39.42 immediately after the report.
Toast posted solid gains, but a quarter doesn’t necessarily mean the stock is a buy. Let’s see if this is a good investment. The last quarter does matter, but not nearly as much as the fundamentals and longer-term valuation when deciding whether the stock is a buy. We cover that in our useful full research report which you can read here. It’s free.
