Toast (NYSE:TOST) Beats Q3 Expectations, Shares Jump 20.7% After Stock History

On By Littum

Share history –

Restaurant software platform Toast (NYSE: ) met Wall Street revenue expectations in Q3 CY2024, with revenue up 26.5% year-over-year to $1.31 billion. Its GAAP earnings of $0.07 per stock was 392% above analysts’ consensus estimates.

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Toast (TOST) Q3 CY2024 Highlights:

  • Income: $1.31 billion vs analyst estimate of $1.29 billion (in line)
  • EPS: $0.07 vs analyst estimate of $0.01 ($0.06 beat)
  • EBITDA: $113 million vs analyst estimate of $78.53 million (43.9% beat)
  • EBITDA expectation for the full year is $357 million at the midpoint, above analysts’ estimates of $305.2 million
  • Gross profit (GAAP): 24.7%, up from 22% in the same quarter last year
  • Operating margin: 2.6%, up from -5.7% in the same quarter last year
  • EBITDA margin: 8.7%, up from 3.4% in the same quarter last year
  • Free Cash Flow Margin: 7.4%, down from 8.7% in the previous quarter
  • Annual recurring revenue: $1.55 billion at the end of the quarter, up 27.6% year-over-year
  • Market value: 18.06 billion dollars

“Toast delivered a strong third quarter, adding approximately 7,000 net new locations, growing our recurring gross profit streams1 35% and achieving adjusted EBITDA of $113 million. We are well positioned to finish the year strong and carry this momentum into 2025. Our differentiated vertical software platform is the foundation of this 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 along with over a dozen feature updates,” said Toast CEO and co-founder Aman Narang.

Company Overview Founded by three MIT engineers in a local Cambridge bar, Toast (NYSE:TOST) provides integrated point-of-sale (POS) hardware, software and payment solutions for restaurants.

Hospitality & Restaurant Software (ETR:)

Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) are two of the largest software categories dominated by Microsoft (NASDAQ: ), Oracle (NYSE: ) and Salesforce.com (NYSE: ). Today, the secular trend of mass customization is driving vertical software that adapts ERP and CRM functions to specific industry requirements. Restaurants are a prime example, with a number of custom software providers emerging in recent years to create unique operating systems that blend tax and accounting software, order management and delivery with supply chain management. Hotels and other hospitality providers are another example.

Sales growth

A company’s long-term performance is an indicator of its overall business quality. Although any business can experience short-term success, the best performers enjoy sustained growth for several years. Over the past three years, Toast grew its sales at an incredible 48.1% compound annual growth rate. This is encouraging because it shows that Toast’s offering is resonating with customers, a useful starting point.

This quarter, Toast’s year-over-year revenue growth of 26.5% was outstanding, and its 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 12 months, a slowdown from the past three years. Still, this projection is remarkable and shows that the market is baking in success for its products and services.

Annual recurring revenue

Investors interested in Toast should track its Annual Recurring Revenue (ARR) in addition to reported revenue. While reported revenue for a SaaS company may include low-margin items like implementation fees, ARR is a sum of the next 12 months’ contract revenue solely from software subscriptions, or the high, predictable revenue streams that make SaaS companies so valuable.

Over the past year, Toast’s ARR growth has been stellar, averaging 31% year-over-year growth, reaching $1.55 billion in the most recent quarter. This performance was in line with revenue growth and shows that customers are willing to invest several years in the company’s technology. Its growth also makes Toast a more predictable business, a tailwind for its valuation, as investors typically prefer companies with recurring revenue.

Customer acquisition efficiency

Customer acquisition cost payback period () measures the number of months a company needs 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.

Acquiring new customers is relatively expensive for Toast, as its CAC payback period checked in at 101.6 months this quarter. The company’s results indicate that it operates in a competitive market and must continue to invest to maintain its growth trajectory.

Highlights from Toast’s Q3 results

We were impressed by Toast’s optimistic EBITDA forecast for the next quarter, which blew past analysts’ expectations. We were also pleased that the gross margin improved. On the other hand, its ARR (annual recurring revenue) missed analysts’ expectations. Zooming out, we think this was a solid quarter. The stock rose 20.7% to $39.42 immediately after reporting.