With 125% Upside Following Q1 Results, Toast Stock Is Anything But Toast

Why Investors Should Look at Toast Inc

Shares of Toast Inc (NASDAQ:TOST) might be down by 54% year-to-date, but TOST stock has been popping since the company reported strong first-quarter financial results. With Toast stock expected to more than double over the next year, it might be a good time to take a closer look at this restaurant technology stock.

Toast Inc provides a large suite of restaurant management solutions, including payment processing systems, online ordering software, loyalty programs, payroll management, and inventory management. (Source: “First Quarter 2022 Financial Results,” Toast Inc, last accessed May 19, 2022.)

The company offers restaurants a single platform that gives them the tools and features they need to run their business. Toast Inc essentially provides a restaurant operating system that connects front-of-house and back-of-house operations across dine-in, takeout, and delivery channels.

While some stock investors might shy away from a tech company that exclusively serves the restaurant industry, Toast Inc has tremendous room for growth.

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There are strong tailwinds in the restaurant industry with the adoption of cloud-deployed point-of-sale systems and other technology-based solutions that help businesses improve their efficiency, especially in light of how tight margins are in the restaurant sector.

The COVID-19 pandemic highlighted how important it is for restaurants to enhance their internal structures so they can offer a combination of online ordering, delivery integration, and reward programs to meet the demands of the rapidly evolving industry.

Q1 Revenue Beat; Outlook Improved

On May 12, Toast Inc announced that its revenue for the first quarter ended March 31, 2022 increased by 90% year-over-year to $535.0 million. This handily trounced Wall Street analysts’ call for first-quarter revenue of $488.0 million. (Source: “Toast Announces First Quarter 2022 Financial Results,” Toast Inc, May 12, 2022.)

The company’s first-quarter 2022 subscription revenue increased by 103% year-over-year to $63.0 million, while its annualized recurring run rate went up by 66% year-over-year to $637.0 million.

Toast Inc’s first-quarter gross payment volume increased by 98% year-over-year to $17.8 billion, with gross profit rallying by 29% to $89.0 million and adjusted gross profit going up by 38% to $101.0 million.

The company reported a first-quarter 2022 net loss of $23.0 million, or $0.20 per share. That was a marked improvement over the first-quarter 2021 net loss of $99.0 million, or $0.48 per share. It was also much better than Wall Street’s forecasts for a first-quarter 2022 net loss of $120.0 million.

Toast Inc reported a first-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $45.0 million, compared to adjusted EBITDA of $4.0 million in the first quarter of 2021.

During the first quarter of 2022, the company added 5,000 new locations in which its products are used, bringing the number of its customers to approximately 62,000.

“Toast delivered a strong first quarter, coming in well ahead of expectations across the board and adding a record number of net new locations to our platform as we continue to lead restaurants into a new digital era of hospitality,” said Chris Comparato, CEO. (Source: Ibid.)

For the second quarter of 2022, Toast Inc expects to report revenue in the range of $635.0 to $665.0 million and an adjusted earnings loss in the range of $60.0 to $50.0 million.

For full-year fiscal 2022, the company expects to report revenue in the range of $2.5 to $2.55 billion, up from its previous guidance range of $2.3 to $2.4 billion. Toast Inc also expects to report a full-year adjusted EBITDA loss in the range of $175.0 to $195.0 million, compared to its previous guidance of a loss in the range of $200.0 to $240.0 million.

TOST Stock’s Performance & Forecast

The bullish posturing by analysts and Toast Inc’s management is certainly good news for investors who have stuck with Toast stock since it went public in September 2021.

As of this writing, TOST stock is down by:

  • 18% over the last month
  • 42% over the last three months
  • 66% over the last six months
  • 53% year-to-date

Chart courtesy of StockCharts.com

Toast Inc’s wonderful first-quarter financial results and solid guidance have led Wall Street analysts to increase their 12-month share-price forecast for Toast stock.

Of the analysts providing a 12-month target for TOST stock, their average estimate is $23.92 and their high estimate is $36.00. This points to potential gains in the range of 50% to 125%.

Analyst Take

Toast Inc is a great restaurant tech stock that has seen its share price take a beating over the last six months. But excellent first-quarter financial results and increased guidance have helped Toast stock rebound from its all-time lows, and have forced Wall Street analysts to increase their price forecast.

The restaurant industry hasn’t fully recovered from the pandemic, and is still in the early days of its shift to digital technology. This bodes well for Toast Inc, with restaurants looking for ways to streamline their operations, increase efficiency, and boost revenue.

With roughly 20% of Toast’s new users coming from referrals and 60% of its sales growth coming from current clients, the company should be able to increase its sales and marketing leverage over the coming years.