Toast, founded in 2011 by MIT graduates Aman Narang and Steve Fredette, is a SaaS cloud-based platform designed to make running restaurants easier. It brings together payments, software, and hardware in one system, helping restaurants manage everything from orders to deliveries and streamline their operations. Let's take a closer look.
The U.S. restaurant industry is vast, employing over 12 million people and generating more than $1 trillion annually. Despite its size, the industry is fragmented, and restaurants face growing challenges such as rising labor and food costs, high employee turnover, and the increasing need for digital integration. Toast estimates its current market share at around 13%, with approximately 875,000 establishments in the U.S. alone.
This fragmentation presents significant growth opportunities for Toast, especially as competitors like Clover, Shopify POS, Lightspeed, and Square focus primarily on niche functions. Its approach, in contrast, is to offer a fully integrated SaaS platform that reduces the need for restaurants to juggle multiple vendors, making it a more attractive option for businesses looking for comprehensive solutions.
Between Q3 2021 and Q1 2024, the number of establishments using Toast's platform grew by 115%, from 52,000 to 112,000. During the same period, annual recurring revenue (ARR) jumped 140%, from $544 million to $1.3 billion, while recurring gross profit soared 229%, from $406 million to $1.3 billion.
International expansion is another key area of growth for Toast. The company is targeting Canada, the UK, and Ireland, markets that together represent over 280,000 restaurant establishments. This brings company's total addressable market (TAM) across these four countries to 1.15 million locations. With around 2,000 international clients today, and a global TAM (excluding China) of 15 million, the potential for international growth is considerable.
What sets Toast apart is its ability to address the complexities of the restaurant industry through its purpose-built SaaS platform. In addition, it employs localized go-to-market strategies that build momentum in specific regions, and it offers a fully integrated suite of products that support restaurants from end to end. AI-driven innovations further enhance the value the group provides. The goal is for user to reduce payroll processing and build a marketing database for example from a single integrated solution instead of managing separate systems for POS, marketing, loyalty, payroll, and online ordering, therefore simplifying operations and increasing efficiency.
In addition to international growth, Toast is also branching into the food and beverage retail space, focusing on convenience stores, independent retailers, and bottle shops. This sector comprises over 220,000 locations and $660 billion in gross merchandise value (GMV). With these expansions, the company expects its total footprint to reach 1.4 million locations, a 60% increase since its IPO.
AI is set to be a major pillar of Toast's future growth. The company is rolling out AI tools to enhance customer satisfaction, reduce support ticket deflection by 30%, and double agent productivity. Upcoming AI products, like a new AI Copilot for Restaurant Managers, are expected to drive operational efficiency and offer specialized insights in areas like benchmarking and marketing optimization.
On the financial front, Toast's growth trajectory has been impressive. Revenue climbed from $665 million in 2019 to $3.8 billion in 2023, with projections suggesting over $7 billion by 2026. EBITDA turned positive at $61 million in 2023 and is expected to reach $703 million by 2026. Gross profit also surged, from $64 million in 2019 to $839 million in 2023. Despite these gains, Toast remains unprofitable, with a net loss of $246 million in 2023, although this is expected to narrow to $55 million by 2024. Analysts anticipate a shift to profitability by 2026, with net income projected to reach $355 million. This suggests that while its cost structure and aggressive investment in growth currently outpace profitability, the company is on a clear path toward financial improvement.
However, Toast faces several risks. The restaurant technology space is highly competitive, and it must continually innovate to maintain its edge against rivals like Square and Lightspeed. The restaurant industry itself is sensitive to economic downturns, which could reduce spending on technology solutions. Additionally, regulatory changes related to payment processing and data privacy may force the company to adjust its business model in the future.
