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Toast’s IPO

By Athean Myat, May Takagi, James Ludlow, Christopher Goranov (Cornell University), and Karen Zhuang (McGill University)

Photo: Jay Wennington (Unsplash)


Summary of IPO

Toast Inc., a US-based company providing restaurant management products, has filed to go public on August 27th, 2021, and is seeking to raise a “placeholder amount” of $100M. Founded in 2011, Toast provides point of sale (POS) platforms, food delivery services, and restaurant management software, including payroll systems, online ordering, inventory tracking, and a loyalty program. As of June 2021, Toast provides value to over 48,000 restaurants and is used by over five million customers daily.

As the pandemic has forced restaurants to utilize technology to improve efficiency, the filing comes at an opportune time. Fueled by competitive pricing and an unmatched commitment to customer service, Toast has grown revenues by $704M since December 2020, marking a 105% increase. Now, as the restaurant industry rebounds, Toast’s IPO could generate the exposure and capital needed to establish a dominant market position.

Company and IPO Profile:

  • Sector: Technology

  • Exchange floated: NYSE

  • Amount raised: plans to raise $902M

  • Notable investors:

    • TPG

    • Tiger Global Management

    • American Express Ventures

  • Lead Underwriters:

    • Goldman Sachs

    • Morgan Stanley

    • JP Morgan

  • Key Figures:

    • EV: $5B

    • EV/Revenue: 4.23x

    • EV/EBITDA: -38.17x

Strategic Rationale

After cutting half of its staff during the pandemic, Toast’s future outlook has quickly changed course. Its annual recurring revenue has grown 118% to $494 million as of the end of June and it has increased its restaurant locations from 33,000 to 48,000. Toast’s response to the pandemic was fueled by its assistance to customers in rapidly transitioning their restaurants to take-out service and gift card sales.

In addition to its recent successes, the momentum of Toast’s competitor Square and the hugely successful IPO of Doordash shows that the market has a very high outlook on fintech and the restaurant industry. This places Toast in a prime position to target a high valuation of its company. Toast is currently shooting for a valuation of around $20 billion, which is significantly higher than its valuation of $4.9 billion in February 2020 off of a $400 million Series F funding.

Toast seeks to raise $100 million during its IPO and plans to use this money to grow its suite of restaurant software. Although the company has been experiencing large revenue growth, it has lost $235 million over the first six months of 2021. This makes the capital raise even better for Toast as it will give them the needed cash to continue their positive trajectory.

Market Reaction

In February of 2020, Toast had raised $400 million at a valuation of $4.9 billion; However, two months later, the pandemic shuttered numerous restaurants and along with these closures Toast laid off its staff by 50% and cut executive compensation. Since then, the company has retooled its offering to help restaurants navigate the new world of takeout and online deliveries. During the first half of 2021, Toast recognized a revenue spike of 105%, with a recorded revenue value of $704 million despite its losses nearly doubling to $235 million. As of February 2021, Toast is seeking a $20 billion IPO valuation.

Toast's rollercoaster IPO demonstrates the firm's ability to adapt to uncertainty and its strength in corporate culture and leadership as they have managed to bounce back from the pandemic. Despite challenges and concerns that may exist about the restaurant industry, it has become evident through Toast’s history of constant revenue growth and improving margins and cash flows that they are financially sound and operating in a market that has major growth potential.

As the economy moves toward recovery from the COVID-19 health crisis, Toast plans to continue to capitalize on the demand for online orders while also developing in-person POS systems to craft loyalty and marketing programs with the end goal of “democratizing technology” for restaurants of all sizes. Simply put, Toast is “making restaurant work a little easier.”

Potential Risks and Downsides

Square (NYSE: SQ) poses a major competitive threat to Toast. Square has 24.91% in POS systems market share compared to Toast, which has 6%. As COVID-19 brings a surge of demand for integrated restaurant management systems, Toast must constantly innovate to remain competitive in the POS systems market. Square offers and services a variety of businesses, not limited to the restaurant industry; the high switching cost associated with Square can pose a challenge to smaller, industry-specific POS systems like Toast when trying to capture more market share.

Another relevant threat is COVID-19 and its effects on the restaurant and hospitality industry. Toast hit a roadblock when COVID-19 caused multiple lockdowns nationwide, forcing the company to cut its staff size by half. Since then, the company has diversified its products by providing various fintech solutions for restaurant use during the pandemic. However, the company’s ability to retain customers relies heavily on restaurants remaining in business; this risk has become acute since COVID-19, with thousands of restaurants ceasing operations.



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