Fintech is on the Menu

Toast. 

Toast, founded in 2011, has aggressively expanded into a critical SaaS and financial technology hound, delivering cloud-based software, payment processing, and integrated financial services for restaurants of all sizes. What started as a niche point of sale has evolved into an all-encompassing operating system offering payroll, supply chain management, marketing, and AI-driven analytics. Toast has positioned itself as a dominant infrastructure player in the restaurant economy.

The restaurant industry has been slow to adopt digital systems, with many still relying on outdated systems. Toast has been able to capitalize on several shifts, including cloud-based and integrated solutions that replaced traditional POS, and embedded financial services are now empowering restaurant operations. With only 15% market penetration in the United States, Toast has massive domestic and international growth potential. 

Toast is executing consistently too rapidly to grow, with over 28,000 new locations in 2024, bringing the total to over 130,000. In 2024, Toast reported revenue of $4.96 million, a 28% year-over-year increase. Toast also reported its first full year of profitability, with an adjusted EBITDA of $373 million. Toast has also launched an international customer base with over 10,000 locations in foreign markets. Toast has become a vital tool for restaurants looking to differentiate themselves and better compete in the wild food market. 

Toast is one of the few companies that has successfully jumped through the hypergrowth and profitability loophole. Toast currently serves about 15% of restaurants in the United States, and has also successfully expanded into enterprise channels, international markets, and food retail segments to unlock new revenue streams.  Toast has been able to create a build a strong moat as many of its customers rely on its systems for everyday use making it very hard to switch to competitors. Toast is not just a restaurant software company but a financial infrastructure business.  

Toast had a strong financial year in 2024, with total revenue reaching $4.96 billion. This reflects a 28% increase from the year prior, the growth was fueled by customer growth and higher adoption of its additional services. Toast hit a major milestone by reaching its first year of profitability, reporting a net income of $19 million. This is a significant improvement from the year prior in 2023 when they reported a net loss of $246 million. Beyond its strong revenue and profitability improvement, Toast was able to add about 28,000 locations in 2024. The company also secured major deals with enterprise companies like Hilton Hotels, Potbelly, and Perkins showing its ability to serve large chains. 

Toast’s stock trades at a high valuation, showing investors are willing to pay a premium for its future growth. Its current PE is 108, which is very high compared to most companies in the financial technology space. Toast also has a strong EV ratio of 4.7x and a Price to sales ratio of 3.28x reflecting that investors have major faith in the company’s growth. They also trade at a premium price-to-book ratio of 12.90 due to most of its value comes from IP, customer relationships, and software rather than physical assets.

Toast has improved in cash flow generation in the past year, generating $360 million in 2024. This major growth in cash flow allows Toast to reinvest in its core business operations and future growth. Another key figure is free cash flow, which saw a major jump from $93 million to $306 million in 2024. Toast is now in a much stronger financial position than in previous years, they can now expand without having to take on debt and issue no stock. If Toast continues to scale its business and improve its efficiency it could see even more substantial growth in the years to come. With great cash flows come great responsibilities. 

The restaurant industry is undergoing a massive digital transformation, with businesses moving from outdated systems to cloud-based solutions. Toast is at the center of this shift, offering an all-in-one system for independent, small chains, and enterprise-level restaurants. Unlike legacy systems that solely focus on transaction processing, Toast provides customers with an end-to-end solution, making them critical for restaurants. They are also expanding to enterprise-level chains, international markets, and food & beverage to further its TAM. Toast is well-positioned to capitalize on the demand of restaurants seeking automated, cloud-based systems to manage orders, payments, and customer loyalty. 

Toast’s business model is built on a combo meal of SaaS and financial technology, making its revenue highly scalable and predictable. Toast’s two most important revenue-driving products are its Toast POS & restaurant software and its payment services segment. Toast’s core software platforms serve as a digital backbone for restaurants, offering POS, employee management, menu optimization, and customer engagement tools. Which is sold on a subscription basis, generating recurring revenue with high margins. Toast’s financial technology ecosystem is its bread and butter, setting it apart from the traditional POS. Toast’s POS automatically processes transactions through Toast Payments, allowing the company to capture a percentage of every sale. The payments model is a major profit cow, allowing Toast to monetize each transaction while increasing customer retention. 

The restaurant technology industry has been exploding in recent years as restaurants seek updated products. Restaurants' key competitors include Square (Block), Clover, Slice, Lightspeed, and legacy players. Square, aka Block, offers a versatile POS and payments platform but lacks Toast’s features. Lightspeed is a global player with a strong presence in the broader retail industry. Toast currently has a 15% market share, making it one of the largest pure-play restaurant SaaS providers. 

Toast has built several strong advantages that set them apart from its competitors including high switching costs, AI integration, and predictable revenue. Once a restaurant adopts Toast’s system, Toast enables them with payments, payroll, inventory, and guest engagement making switching to another provider extremely difficult. Toast collects massive amounts of data from restaurant operations, allowing it to offer AI-powered tools that its competition can’t match. Toast also benefits from a built-in recurring revenue model. 

The restaurant technology industry sits at the intersection of hospitality, financial services, and software making it a a rapidly evolving space with many subsegments. A foundation of every restaurant is its Point of Sale system, which enables restaurants to handle transactions, order management, and kitchen operations. More POS services are integrating payment processing, payroll automation, and lending services into their stacks to attract more customers and upsell current ones. Service providers are also investing heavily in AI projects like inventory management, predictive analytics, labor scheduling, and marketing automation tools that will help restaurants optimize their supply chains. Within these segments, Toast can become more than just a POS provider.

Several economic and technological forces are reshaping the restaurant industry including labor, payments, AI, loyalty programs, and regulatory compliance. Restaurants are often understaffed and face rising wage pressures, leading them to seek automation and efficiency solutions. There also has been a major shift towards cashless and contactless payments, as customers prefer mobile ordering, QR code payments, and digital wallet options. Artificial intelligence is also playing a growing role in predictive analytics, personalized marketing tools, and menu optimization. Toast’s online ordering tools, customer loyalty programs, and automation give its customers a competitive edge. Restaurants are also increasingly utilizing third-party delivery platforms like Uber Eats and Doordash, to increase customer awareness. 

Restaurant customer preferences are also evolving rapidly, creating both challenges and opportunities for restaurant operations with key trends including convenience, AI-driven customer engagement, price sensitivity, and direct brand engagement.  Dining options like drive-thru, takeout, and delivery now make up a larger portion of restaurant sales as customers are increasingly favoring faster and more convenient dining options. With the rise of AI tools, customers are now expecting personalized experiences from targeted promotions to loyalty rewards. Younger consumers are also now demanding healthier, locally sourced, and eco-friendly food options. These shifts are reshaping how restaurants operate and Toast is well positioned to help operators adapt while maintaining profitability. 

The global restaurant technology market is expected to grow from $25 billion in 2023 to $55 billion by 2030. This growth is driven by increased digital adoption, AI automation, and international markets. Asia and Latin America are rapidly seeing rapid growth in cloud-based POS adoption, AI-driven ordering, and embedded fintech solutions. Many legacy POS providers are being replaced by cloud-native platforms that offer integrated payments, marketing, and operational tools. This shift is creating massive opportunities for new players to redefine the future of restaurants and dining. 

Toast has multiple organic growth drivers that include its SaaS platform, fintech offerings, and international growth prospects. One of its primary growth drivers is its SaaS platform, which includes its point-of-sale system, payroll, inventory, marketing automation, and AI analytics. Toast has also expanded its product offerings to products like Toast Capital, and menu optimization tools. While the company is in the early stages of a global rollout, expanding its non-US markets represents a significant TAM/TAP expansion. The company’s ability to localize payment processing, regulatory compliance, and AI-driven analytics will determine how effectively it can scale globally. 

Toast has also pursued inorganic growth opportunities through M&A and strategic alliances, allowing it to accelerate product development and expand its product reach. Over the years the company has made several acquisitions, focused on expanding its financial technology capabilities, restaurant automation, and data analytics offering. In 2019, Toast acquired StratEx, a payroll and HR software company that is tailored for restaurants. Then in 2021, Toast acquired xtraCHEF, a restaurant cost management and automation software provider enabling restaurants to reduce waste and optimize purchasing. Beyond acquisitions, Toast has built strategic alliances with payment processors, POS hardware providers, and food delivery platforms, ensuring seamless integration with third-party services. These partnerships enable Toast to expand its ecosystem without needing to invest in every feature in-house which allows for faster scalability and adoption.

Several catalysts could propel Toast’s growth in the future, particularly in technology advancements, supply chain efficiencies, and industry-wide digital transformation. AI could potentially become a core driver of restaurant efficiency, giving the ability to restaurants to optimize labor costs, and menu prices, and predict consumer demand accurately. Toast started by targeting small and mid-sized restaurants, but winning high-profile accounts demonstrates its ability to scale beyond independent restaurants. Restaurants lose billions every year due to supply chain inefficiencies, Toast plans to tackle this issue with AI forecasting and inventory management solutions. If Toast can successfully adopt its platform to international compliance, multicurrency payments, and localized restaurant analytics, it could become the most dominant player. 

Toast is growing rapidly, but scaling Toast presents several operational risks that include service quality, customer onboarding, hardware logistics, and global expansion. As Toast continues to add new customers, one major challenge is onboarding, training, and making sure the customer service teams can keep up. While Toast is primarily a software company, it provides POS terminals, card readers, and payment processing hardware. Any disruption in the company’s supply chain could delay new customer signups and affect revenue growth. Additionally, if Toast fails to gain traction outside the U.S. that would hurt its growth potential. 

The restaurant technology industry has become competitive, and Toast faces competition from many large firms like Square, Lightspeed, and legacy POS providers. Competitors with strong financial backing could undercut Toast on pricing or introduce features that could hurt Toasts market position. Regulatory risks are also a significant challenge for Toast, increased compliance laws could increase Toast’s operating costs or limit its ability to offer certain financial products. Another risk is the fluctuating restaurant market demand, meaning that during economic downturns, consumer spending on dining out tends to decline. In addition, factors like inflation, rising food costs, and supply chain disruptions could impact the restaurant’s profitability, leading to lower adoption of Toast’s premium products. 

Toast’s current valuation reflects high growth expectations, any slowdown in growth, profitability, or customer acquisition could trigger a sharp decline in valuation. As a high-growth technology company, Toast is vulnerable to rising interest rates. If the Federal Reserve continues to raise rates, investor sentiment towards Toast and high-growth stocks could weaken. Lastly, the broader fintech and saas sectors have historically experienced significant volatility, due to investors shifting between growth stocks and value stocks depending on the macroeconomic conditions.  Toast’s high valuation could become a liability if investors rotate away from tech stocks which would lead to increased volatility in its stock price. 

Toast is a high-growth company that operates at the intersection of software as a service and financial technology, they have successfully embedded itself within the restaurant industry. Toast currently has a 15% market share within the United States market, and is beginning to expand globally. Additionally, its SaaS and fintech businesses provide high margin opportunities to increase revenue per customer. Key growth drivers include enterprise adoption, embedded lending, AI powered automation which should continue fueling growth and cash flow expansion. However, risk is everywhere from its high valuation to the competitive landscape of the financial technology industry. 

The bad boys over at Azar Capital Group will be giving Toast a ‘BUY’ rating due to the expanding demand of cloud-based technology infrastructure. Large restaurant chains and retail networks have begun utilizing the Toast network which offers even more growth opportunities. Toast is also well positioned for growth outside of the United States as emerging markets have begun making the switch to cloud-based technology. At its current growth rate, Toast is a compelling long-term play to gain exposure to the restaurant industry, but investors should be prepared for volatility due to its premium valuation. 

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