Toast (TOST) Not Burnt By Market Volatility As Shares Soar In Debut
3:49 pm Wednesday, September 22nd, 2021
IPO investors are raising their glasses to Toast (NYSE:TOST) today, a provider of a cloud-based platform for restaurants that facilitates digital transformations while streamlining other functions like payment processing, invoicing, and ordering. After its 21.7 mln share offering priced at $40, well above the upwardly revised $34-$36 range, shares opened for trading at $65.26, making it one of the most successful IPOs in recent weeks. It’s easy to understand why TOST’s deal generated so much excitement.
In the wake of the pandemic, fortifying technological capabilities — especially mobile ordering and delivery functionality — has become paramount for restaurants. Through its Toast Delivery and Toast Now offerings, TOST is at the forefront of restaurants’ digital expansion efforts. This is apparent in the company’s impressive growth, highlighted by a 118% surge in annual recurring revenue (ARR) to $494 mln as of June 30, 2021.
While the pandemic turbo-charged TOST’s growth, the company was already on the upswing before the virus forced the digitization of businesses. What the company’s platform brings to the table is a one-stop-shop that can efficiently integrate all of a restaurant’s legacy technologies into a single access point. Once implemented, solutions that were previously pieced together, such as ordering, payments, operations, and invoicing, are displaced as TOST’s platform syncs them all together.
The simplicity and efficiencies created by the platform has clearly resonated well within the restaurant industry. Rewinding to FY20, total revenue and ARR increased by 24% and 77%, respectively, with momentum building since then. To put that momentum into perspective, TOST’s customer base jumped to 47,942 as of June 30, 2021, from 19,891 two years earlier.
The most intriguing aspect of TOST’s IPO is that the company is only in the early innings of its growth curve. Despite the rapid expansion of its customer base, the company estimates that it has only achieved 6% market share in the U.S. As restaurants ramp up their spending on technology in order to bolster online ordering and delivery services, TOST should have little difficulty expanding its market share. On a related note, the company is forecasting technology-related spending for restaurants to increase to $55 bln by 2024, up sharply from $25 bln in 2019.
