Toast, a provider of restaurant sales and management software, is the IBD Stock of the Day as it comes off a better-than-expected first-quarter earnings report. While the company competes in a crowded market, a hurdle for Toast stock, it has set itself apart from rivals with specialized services.
On the stock market today, Toast stock surged more than 11% to 26.37. With the gain, Toast stock has advanced 47% in 2024.
Toast Stock Investor Day
The company plans to host an investor day on May 29. At the event, it's expected to discuss long-term financial goals.
Heading into the Q1 earnings report, Toast stock owned a 25.63 cup-with-handle buy point.
With Wednesday's surge, Toast stock broke out past that buy point and remained within a 5% buy zone ending at 26.96. IBD Leaderboard added Toast as an earnings option play on Tuesday.
Toast's Q1 revenue rose 31% to $1.075 billion, topping estimates of $1.048 billion.
Earnings before interest, taxes, depreciation and amortization, or EBITDA, came in at $57 million, handily beating estimates of $25.2 million.
The company raised full-year EBITDA guidance to $250 million to $270 million from $200 million to $220 million.
"Toast reported strong operating results beating consensus estimates across the board," said Evercore ISI analyst Sheriq Sumar in a report. "Recurring gross profit beat consensus by 5% whereas adjusted EBITDA exceeded consensus estimate by a solid 127%."
Restaurant Locations Expanding For Toast Stock
At Morgan Stanley, analyst Josh Baer said in a report that Toast is doing a good job of expanding restaurant locations. In Q1, Toast added over 6,000 net new locations, reaching 112,000 overall, up 32% year-over-year.
"Market share gains are supported by Toast replicating its efficient flywheel go-to-market in more regions within the U.S. as well as international expansion (Canada, U.K., Ireland)," he said.
Toast's main competitors include Square-parent Block, Fiserv's Clover, Shift4, Lightspeed, TouchBistro and SpotOn.
In the enterprise market, competitors include NCR Voyix, PAR Technologies and Oracle's Micros.
Toast Co-Founders Set IPO
Co-founders Chris Comparator, Steve Fredette and Aman Narang worked at Endeca, a business intelligence software firm. Oracle acquired Endeca in 2011. Comparator stepped down as chief executive in September 2023, with Narang taking the helm.
The company was founded in 2012, but Toast stock didn't go public until September 2021. The initial public offering raised $870 million.
Toast's products range from point-of-sale hardware, kitchen displays, payment processing, supplier and invoice management, payroll, delivery management, menu consultation and marketing programs.
Competition is fierce with restaurant-specific players such as Lightspeed, Square and TouchBistro as well as horizontal providers such as Clover that offer payment services in many industries.
Meanwhile, happy Toast customers create a powerful "word-of-mouth" referral engine in the industry, analysts say.
"Toast's solution set differentiates itself from legacy peers by offering a cloud-based software solution that enables customers to easily customize its product suite and attach third-party developed apps," said RBC Capital analyst Daniel Perlin in a report. "Many competitors have a more horizontal approach that includes retail and services."
Based in Boston, the company also has U.S. offices in Chicago, Omaha, Reno, San Francisco and Nashville. Toast's software runs on cloud-computing infrastructure at Amazon Web Services, part of Amazon.com.
Acquisitions Expand Product Offerings
In 2020, the company rolled out Toast Capital, which provides loans to restaurants.
"Given that the restaurant industry operates with low margins, high employee turnover, and perishable products, coupled with changing customer preferences, we believe that Toast is positioned to benefit from the secular shift toward restaurant digitalization," said RBC's Perlin..
In addition, Toast has also been active in making acquisitions. In 2019 Toast bought StratEx for $44 million. Chicago-based StratEx provides human resources and payroll software.
In 2021, Toast acquired XtraChef for $48 million. XtraChef sells supplier management software. Then in 2022, Toast bought Sling. Sling's employee scheduling software allows workers to change shifts and communicate with colleagues.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
