What I am I missing? Toast (TOST) should be doing better?

Hello all,
Part of learning how Saul picks stocks, for me, is also being able to find my own stocks out there. One of the ones I have mentioned in posts, and has been talked about a little by others is…Toast (TOST)
I have been following it for a while and started building a position for the last year’ish. I finally started building out my position because I see it at EVERY restaurant in the NE and the staff I talk to like it. The numbers are pretty good and while I see some slowdown, the numbers are still pretty good.

This past quarter they even turned a PROFIT!!! (Woo hoo.) The expect FY numbers to show profitability as well for first time in company history.

What am I missing? Why is the market so upset with them?

Numbers as I have them:

So they have ARR at over a BILLION a year now and they added a record number of customers at over 7000 new locations.

As of right now the whole position I have is -20% and they are down from ~$27/share this year to ~$18 now. That’s over 30% off on a company that had good numbers. What the heck?!?!

This all started as I have been considering cutting that position with the scalpel that Saul has taught us to use, but once I got back into the numbers, it still looks good?

Last IR presentation (slide 15 will show that hardware is barely a blip on what they do now a days) - https://s28.q4cdn.com/141746709/files/doc_financials/2023/q2/TOST-Investor-Presentation-Q2FY23.pdf

What am I missing, why should this be cut or why should this be kept. I am almost talking myself into keeping it all for one more earnings season?


One ding I did know about, was the .99c fee fiasco, but that was such a short lived thing that it never even made it to the numbers. They introduced it, got a bunch of backlash, and then removed it. But all the talking heads say that it means uncertainty for their revenue…it doesn’t, it wasn’t around long enough to have ANY impact to revenue, so they are basically the same as before and still making money.


imo there’s not a lot of discussion here on $TOST because we look for competitive advantage and as evidence of competitive advantage we look for high gross margins… GM of $TOST is 20.98% according to their page on seekingalpha.

My view is that for whatever reason, it’s hard to get high margins in the payments space.

That said, in the very rough category of the “payments” space, before considering $TOST I personally would look into:

$FOUR: GM is only 26%, but they’ve been profitable for some time and Bert H. has written in favor of them several times on SA

$GLBE: GM is 39% and there is some discussion here

$RELY: GM is 53% and there is some discussion here

$AFRM: GM is 63% and Bert H. has written in favor of them several times on SA


I have been looking for margin information, but they do not publish it in their own documents. I will have to check out SA.

I forgot to mention $DLO: GM is 46%, looks to me like they are profitable and growing nicely


And last, but not least: $PAYO:

GM is 85%

–revenue numbers in millions
–don’t quote me; I haven’t double-checked:
90, 110, 122, 139 ## total 461
137, 148, 158, 183 ## total 626
192, 206 ## guidance is 820 - 830

Transaction cost % was at 22% when they went public and is now down to 15%

Guidance: Revenue $820 million - $830 million (vs. consensus of $818.41M); Transaction costs ~15.5% of revenue; Adjusted EBITDA $160 million to $170 million

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So, to do a counter about it being just a payments processor…they have all the services that resturants need. Not sure if the others do this?


  • Point of sales
  • Kitchen display
  • Location management
  • Invoicing
  • Catering
  • Hardware

Financial stuff:

  • Financing
  • Capital


  • Gift and loyalty cards
  • Email marketing


  • Online ordering
  • Delivery service
  • Third party delivery integration


  • Payroll
  • Scheduling
  • Insurance/Benefits

Supply Chain:

  • Recipe costing
  • Inventory management
  • Price trackers

Do all the other companies you are listing offer a specific restaurant suite of options?


About Toast - I haven’t done any type of deep dive, but a cursory glance at the numbers tell me that it possibly just isn’t such a good business. Or it doesn’t have such a great business model (I’ll leave it to Bear, the Captain and Brittlerock to debate which it is :wink: ) I would suggest you look further than just the revenue to the different margins, take rate etc. of the business, and how that has progressed.

It seems that, as the business has scaled, it has not resulted in much operating leverage - the business didn’t get more profitable as it scaled, really. They’ve had operating losses and net losses as far back as the history on SA shows, and if we adjust for SBC, all things non-recurring and a bit of warrant weirdness, Their adjusted EBITDA from that deck above looks like this:

So that’s as good as they can make profitability look. Adjusted earnings, before interest (a real expense), tax (a cash cost eventually), depreciation and amortisation (non-cash, but the capex is real).

So in this last quarter their business processed $32 billion dollars worth of transactions, of which they could recognise $978m in revenue as their “own” and on which they generated $208m ($225m non-gaap) in gross profit. Then of that 208m gross profit, they kept $15m as adjusted EBITDA and lost $98m on the bottom line. Not a lot left from that original $978m of revenue even when you look at adjusted EBITDA. And going by the history this number is not on the cusp of exploding imo (I could be wrong of course, in which case the stock should do well).

If we don’t use adjusted numbers, but just the plain old boring GAAP ones, this is the net loss (from the same deck):

So not much improvement there…in fact it seems to me that it’s getting worse. It seems to me to be a company with a poor business model - poor margins that don’t improve much with increasing scale. Like running like hell to remain in one place. Perhaps that’s what the market is seeing? Perhaps the market is looking for concrete evidence of sustained improved margins/profitability trends before rewarding shareholders?

I own Dlocal as a small position, and they processed $4.3bn worth of transactions, of which they recognised $161m in revenue and kept $71m as gross profit, $52m as adjusted EBITDA and $45m as net profit (the real, GAAP kind) in their last reported quarter. That is a significantly better business(model) compared to Toast imo. And it trades at a lower revenue multiple.



Ok, so I did some digging into gross margin and got about the same thing. Found this image -


So, I am looking at a company that isn’t the best in the field of payment services and has pretty small (for Sauldom) gross margins. That would imply that their costs will aways go up as they try to grow revenue, so they would never get to hypergrowth?


Ok, probably my last post on this thread? I found this page listing restaurant management software and there are quite a few. One of the things that made me think Toast would be good was that it ‘seemed’ to be the main company consolidating various parts of a restaurant business into a single solution…but it seems they are not the only ones. That does take away some of the shininess for me.

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