Toast, Inc. (TOST) Bundle
Understanding Toast, Inc. (TOST) Revenue Streams
Understanding Toast, Inc.’s Revenue Streams
Toast, Inc. generates revenue primarily from three segments: subscription services, financial technology solutions, and hardware and professional services. Below is a detailed breakdown of these revenue sources as of 2024.
Breakdown of Primary Revenue Sources
| Revenue Source | Q3 2024 Revenue (in millions) | Q3 2023 Revenue (in millions) | Year-over-Year Growth (%) |
|---|---|---|---|
| Subscription Services | $189 | $131 | 44% |
| Financial Technology Solutions | $1,067 | $856 | 25% |
| Hardware and Professional Services | $49 | $45 | 9% |
| Total Revenue | $1,305 | $1,032 | 26% |
In the first nine months of 2024, the revenue figures were as follows:
| Revenue Source | 9M 2024 Revenue (in millions) | 9M 2023 Revenue (in millions) | Year-over-Year Growth (%) |
|---|---|---|---|
| Subscription Services | $506 | $358 | 41% |
| Financial Technology Solutions | $2,963 | $2,338 | 27% |
| Hardware and Professional Services | $153 | $133 | 15% |
| Total Revenue | $3,622 | $2,829 | 28% |
Year-over-Year Revenue Growth Rate
The year-over-year growth rates for Toast, Inc. indicate a strong upward trend across all revenue segments, with total revenue increasing by 26% in Q3 2024 compared to Q3 2023, and 28% for the first nine months of 2024 compared to the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
The financial technology solutions segment continues to be the largest contributor to overall revenue, accounting for approximately 82% of total revenue in Q3 2024. Subscription services, while smaller, have shown significant growth and represent about 15% of total revenue.
Analysis of Significant Changes in Revenue Streams
The revenue from subscription services has increased significantly, driven by a growth in the number of restaurant locations on the platform and increased product adoption. The financial technology solutions revenue also rose due to higher gross payment volume (GPV), which reached $41.7 billion in Q3 2024, up from $33.7 billion in Q3 2023, marking a 24% increase year-over-year.
The hardware and professional services segment has shown modest growth, indicating a steady demand for these offerings, although it remains the smallest segment compared to the other two. Overall, Toast, Inc. has demonstrated robust revenue growth across its primary revenue streams, positioning itself well for continued expansion in the restaurant technology sector.
A Deep Dive into Toast, Inc. (TOST) Profitability
A Deep Dive into Toast, Inc.'s Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit was $365 million, representing a gross profit margin of approximately 28%. In comparison, for the same period in 2023, the gross profit was $270 million, which corresponds to a gross profit margin of about 26%.
Operating Profit Margin: The operating income for the three months ended September 30, 2024, was $34 million, yielding an operating profit margin of 2.6%. In contrast, for the three months ended September 30, 2023, the operating loss was ($59 million), equating to an operating profit margin of (5.7%).
Net Profit Margin: For the three months ended September 30, 2024, net income stood at $56 million, resulting in a net profit margin of 4.3%. This is a significant improvement compared to the same period in 2023, where the net loss was ($31 million), leading to a net profit margin of (3.0%).
Trends in Profitability Over Time
The following table summarizes the profitability metrics over the past two fiscal years:
| Period | Gross Profit ($ millions) | Operating Income ($ millions) | Net Income ($ millions) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) |
|---|---|---|---|---|---|---|
| Q3 2024 | 365 | 34 | 56 | 28 | 2.6 | 4.3 |
| Q3 2023 | 270 | (59) | (31) | 26 | (5.7) | (3.0) |
| Q2 2024 | 350 | 50 | 40 | 27 | 3.8 | 3.1 |
| Q2 2023 | 240 | (45) | (35) | 25 | (5.2) | (4.1) |
Comparison of Profitability Ratios with Industry Averages
As of 2024, the industry average profitability ratios for similar companies are as follows:
- Gross Margin: 30%
- Operating Margin: 10%
- Net Margin: 5%
Comparing these industry averages to the company's performance shows that while the gross margin is slightly below the industry average, both operating and net margins have shown significant improvement, indicating a positive trend towards operational efficiency.
Analysis of Operational Efficiency
The company has been making strides in cost management. For the three months ended September 30, 2024, total operating expenses were $288 million, compared to $285 million for the same period in 2023. This reflects a modest increase, but it is contained relative to revenue growth, which stood at $1,305 million for Q3 2024.
Furthermore, the gross margin has seen an upward trend, increasing from 26% in Q3 2023 to 28% in Q3 2024. This improvement is attributed to enhanced operational efficiencies and a more favorable product mix.
Overall, the operational metrics indicate that the company is on a positive trajectory, with effective cost management and improved profitability ratios contributing to a healthier financial outlook for investors.
Debt vs. Equity: How Toast, Inc. (TOST) Finances Its Growth
Debt vs. Equity: How Toast, Inc. Finances Its Growth
Debt Levels
As of September 30, 2024, Toast, Inc. reported total liabilities of $807 million, with $656 million in accrued expenses and other current liabilities. The company has a senior secured credit facility with $330 million available and no amounts drawn or outstanding.
Debt-to-Equity Ratio
The debt-to-equity ratio is an important metric for evaluating the financial leverage of a company. For Toast, Inc., the debt-to-equity ratio as of September 30, 2024, was approximately 0.57, calculated using total liabilities of $807 million and total stockholders' equity of $1,420 million. This ratio compares favorably to the industry average of approximately 0.75, indicating a more conservative approach to financing.
Recent Debt Issuances and Credit Ratings
In March 2023, the company amended its senior secured credit facility to replace LIBOR with SOFR, reflecting a proactive approach to managing interest rate exposure. As of September 30, 2024, there were $5 million in letters of credit outstanding under the credit facility. Toast, Inc. currently holds a credit rating of B+ from S&P, indicating a stable outlook.
Balancing Debt and Equity Financing
Toast, Inc. strategically balances its capital structure between debt and equity. During the nine months ended September 30, 2024, the company raised $84 million from the issuance of common stock. In February 2024, the company authorized a share repurchase program of up to $250 million to enhance shareholder value. This program allows the company to utilize available cash while maintaining a healthy balance sheet.
| Metric | Amount |
|---|---|
| Total Liabilities | $807 million |
| Total Stockholders' Equity | $1,420 million |
| Debt-to-Equity Ratio | 0.57 |
| Available Credit Facility | $330 million |
| Letters of Credit Outstanding | $5 million |
| Recent Equity Issuance | $84 million |
| Share Repurchase Authorization | $250 million |
Assessing Toast, Inc. (TOST) Liquidity
Assessing Toast, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated as follows:
| Current Assets (in millions) | Current Liabilities (in millions) | Current Ratio |
|---|---|---|
| $1,272 | $385 | 3.31 |
Quick Ratio: The quick ratio is determined by excluding inventory from current assets:
| Quick Assets (in millions) | Current Liabilities (in millions) | Quick Ratio |
|---|---|---|
| $1,202 | $385 | 3.12 |
Working Capital Trends: The working capital as of September 30, 2024, is:
| Working Capital (in millions) | Change from Previous Year (in millions) |
|---|---|
| $887 | $300 |
Cash Flow Statements Overview:
| Cash Flow Type | Nine Months Ended September 30, 2024 (in millions) | Nine Months Ended September 30, 2023 (in millions) |
|---|---|---|
| Operating Cash Flow | $213 | $43 |
| Investing Cash Flow | ($24) | ($85) |
| Financing Cash Flow | $7 | $58 |
Potential Liquidity Concerns or Strengths: As of September 30, 2024, the company has:
- Cash and cash equivalents of $761 million
- Marketable securities totaling $511 million
- Available credit facility of $330 million
These figures indicate a robust liquidity position with total liquidity resources of $1.602 billion .
Is Toast, Inc. (TOST) Overvalued or Undervalued?
Valuation Analysis
The valuation of a company is typically assessed using various financial ratios that provide insight into its market performance relative to its earnings, assets, and cash flow. For this analysis, we will explore the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the trailing twelve months (TTM) P/E ratio stands at N/A due to the company reporting a net loss of $13 million for the nine months ended September 30, 2024. This indicates that the company is currently not generating positive earnings, which complicates traditional P/E valuation.
Price-to-Book (P/B) Ratio
The price-to-book ratio is calculated using the company's book value. As of September 30, 2024, the book value per share is approximately $2.51, calculated from total stockholders' equity of $1.42 billion divided by 565 million shares outstanding. With a current stock price of $7.12, the P/B ratio is approximately 2.84.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) as of September 30, 2024, is calculated as total market capitalization plus total debt minus cash and cash equivalents. The company has $1.27 billion in cash and equivalents and no long-term debt. The EBITDA for the trailing twelve months is approximately $34 million, calculated from the operating income adjusted for depreciation and amortization. Thus, the EV is approximately $3.43 billion, resulting in an EV/EBITDA ratio of approximately 101.76.
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $4.62 and a high of $8.95. As of the end of September 2024, the stock price closed at $7.12, reflecting a 30% increase year-to-date.
Dividend Yield and Payout Ratios
The company does not currently pay dividends, and thus the dividend yield is 0%. The payout ratio is also N/A due to the absence of earnings.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a mixed outlook, with 50% of analysts rating the stock as a buy, 30% as a hold, and 20% as a sell.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | N/A |
| P/B Ratio | 2.84 |
| EV/EBITDA Ratio | 101.76 |
| Stock Price (as of Sept 30, 2024) | $7.12 |
| 1-Year Price Range | $4.62 - $8.95 |
| Dividend Yield | 0% |
| Analyst Consensus | 50% Buy, 30% Hold, 20% Sell |
Key Risks Facing Toast, Inc. (TOST)
Key Risks Facing Toast, Inc.
Overview of Internal and External Risks
Toast, Inc. faces significant risks that can impact its financial health and operational performance. Key external risks include intense competition within the restaurant technology industry, regulatory changes affecting payment processing, and fluctuating market conditions that can influence customer spending behavior.
Industry Competition
The competitive landscape is characterized by numerous players offering similar services. As of September 30, 2024, the company's Gross Payment Volume (GPV) reached $151 billion, reflecting a year-over-year growth of 24%. This significant volume underscores the competitive pressure to maintain and expand market share.
Regulatory Changes
Ongoing regulatory changes can also pose risks, particularly related to payment processing and data security. Compliance with these regulations requires continuous investment and adaptation, potentially straining financial resources.
Market Conditions
Market conditions, particularly consumer spending trends, can significantly affect the company’s performance. The company noted that its revenue is influenced by seasonal fluctuations, with stronger performance typically seen in warmer months.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight several operational and financial risks. For example, in the nine months ended September 30, 2024, the company reported a net loss of $13 million, an improvement compared to a loss of $210 million in the same period of 2023. This indicates ongoing challenges in achieving profitability despite revenue growth.
Restructuring Expenses
In February 2024, the company initiated a restructuring plan, incurring approximately $46 million in restructuring-related charges. These expenses included severance benefits and accelerated stock-based compensation, reflecting strategic adjustments aimed at enhancing operational efficiency.
Mitigation Strategies
To mitigate these risks, Toast, Inc. has implemented several strategies. The company has focused on expanding its product offerings and enhancing customer engagement through technology innovation. For example, the Annualized Recurring Run-Rate (ARR) reached $1.554 billion as of September 30, 2024, demonstrating a growth of 28% year-over-year.
Table: Key Financial Metrics
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Gross Payment Volume (GPV) | $41.7 billion | $33.7 billion | 24% |
| Annualized Recurring Run-Rate (ARR) | $1.554 billion | $1.218 billion | 28% |
| Net Income (Loss) | $(13) million | $(210) million | Improvement |
| Restructuring Expenses | $46 million | $0 million | N/A |
Overall, while Toast, Inc. navigates a complex array of risks, its strategic initiatives and financial metrics indicate a focused approach to enhancing its competitive position in the market.
Future Growth Prospects for Toast, Inc. (TOST)
Future Growth Prospects for Toast, Inc.
Analysis of Key Growth Drivers
The company is expected to benefit significantly from various growth drivers, including:
- Product Innovations: Continuous enhancement of its platform has led to an increase in subscription services revenue, which grew by 44% year-over-year for the three months ended September 30, 2024, reaching $189 million compared to $131 million in the same period of 2023.
- Market Expansions: As of September 30, 2024, approximately 127,000 locations are using the platform, marking a 28% increase year-over-year, which contributes to a gross payment volume (GPV) of approximately $151 billion.
- Acquisitions: The integration of acquired entities is expected to enhance service offerings and customer base, which has been a key factor in revenue growth.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is projected to continue at a robust pace, with total revenue for the three months ended September 30, 2024, amounting to $1.305 billion, a 26% increase from $1.032 billion in 2023. For the full year 2024, earnings estimates suggest:
- Subscription Services: Expected to reach $506 million for the nine months ended September 30, 2024, up from $358 million in 2023.
- Financial Technology Solutions: Anticipated to generate $2.963 billion for the nine months ended September 30, 2024, compared to $2.338 billion in 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic partnerships and initiatives are integral to the company’s growth strategy. The company has authorized a share repurchase program of up to $250 million to enhance shareholder value, with $194 million remaining as of September 30, 2024. Additionally, the company continues to expand its product offerings, which is expected to drive customer acquisition and retention.
Competitive Advantages That Position the Company for Growth
The company possesses several competitive advantages, including:
- Scalable Platform: The company’s technology allows for easy integration and scalability for its customers, facilitating growth in GPV, which reached $41.7 billion for the three months ended September 30, 2024, a 24% increase year-over-year.
- Strong Brand Recognition: With a growing customer base and continuous innovation, the company has established itself as a leader in the restaurant technology space.
- Operational Efficiency: The company has implemented cost management strategies that reduced general and administrative expenses by 18% for the three months ended September 30, 2024.
| Key Metrics | Q3 2024 | Q3 2023 | % Change |
|---|---|---|---|
| Total Revenue | $1.305 billion | $1.032 billion | 26% |
| Subscription Services Revenue | $189 million | $131 million | 44% |
| Financial Technology Solutions Revenue | $1.067 billion | $856 million | 25% |
| Gross Payment Volume (GPV) | $41.7 billion | $33.7 billion | 24% |
| Locations on Platform | 127,000 | - | 28% |
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Updated on 16 Nov 2024
Resources:
- Toast, Inc. (TOST) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Toast, Inc. (TOST)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Toast, Inc. (TOST)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.