Toast’s IPO could value catering technology provider at $ 16 billion

Toast's IPO could value catering technology provider at $ 16 billion

The technique of the Toast restaurant

toast

Toast is gearing up for an IPO next week that could value the catering tech company at over $ 16 billion, nearly double its valuation from a secondary stock sale last November.

The company has taken a very uneven path to the New York Stock Exchange.

Before the COVID-19 pandemic, Toast thrived on selling technology to restaurants that helped them combine their payment systems with things like inventory management and multi-location controls for multi-location restaurants. Investors valued the company at $ 5 billion in February 2020.

Two months later, Toast cut its workforce by about 50% as coronavirus cases increased and businesses closed. CEO Chris Comperato wrote in a blog post at the time that in March, “Due to essential social distancing and government-imposed closures, restaurant sales fell 80% in most cities. “.

But Toast was quick to turn the tide. Restaurants that had always relied on on-site dining suddenly needed take-out, delivery, alfresco options, and contactless ordering. Toast initially gave its customers a month’s credit for software fees and free access to its technology that enabled takeout, online ordering, and gift card purchases.

A man sits in a bubble tent as the spread of coronavirus disease (COVID-19) continues in New York City on February 4, 2021.

Jinah Moon | Reuters

In the third quarter of 2020, revenue was growing again from the previous year, and in November the company was experiencing such growth that it held a secondary sale of shares for current and former employees to hold until ‘to 25% of their acquired shares. being able to sell Toast is worth $ 8 billion.

Today, Toast says it served more than 48,000 restaurants at the end of June, up from 27,000 in 2019. Annual recurring revenue increased 118% to $ 494 million in the second quarter from a year ago. a year. The bulk of Toast’s revenue comes from fintech solutions, which primarily consist of fees paid by customers for payment transactions. Less than 10% comes from subscriptions.

In its updated IPO prospectus on Monday, Toast said it plans to sell shares between $ 30 and $ 33, which is more than $ 700 million at the high end of the range. The company is said to be valued at $ 16.5 billion based on its number of shares outstanding.

Yet toast is an expensive business to operate. Since most of its revenue comes from payment transactions, the company has higher expenses associated with that revenue and an overall gross margin that is much lower than a typical cloud software company.

In the last quarter, Toast’s gross margin, or the amount of revenue remaining after taking into account cost of goods sold, was approximately 21%. After factoring in all of its other costs such as sales, marketing, and research and development, Toast reported a net loss of $ 135.5 million in the quarter.

put money into food technology

Even with its high cost structure, Toast is riding the wave of investor enthusiasm for the technology that serves the evolving restaurant and hospitality industries, especially in a pre-Covid world with little chance of a return. . Looks.

Food delivery company DoorDash has been valued at more than $ 71 billion since its IPO in December and Uber has been able to keep its business afloat by shifting its resources from carpooling to food delivery. Airbnb, which also went public in December, was worth more than $ 100 billion last May despite the layoff of around 25% of its workforce.

Grocery delivery company Instacart was valued at $ 39 billion earlier this year and is reportedly gearing up for an IPO. In the start-up landscape, investments in food technology, which include funding for delivery companies, catering software and other categories, reached $ 13.5 billion in the first quarter, falling to $ 8. $ 9 billion in the second quarter, according to CBINights. For the first half of 2021, it is almost double the amount invested in the same period in 2019 before the pandemic.

The uncertainty surrounding the pandemic and how it will unfold could weigh heavily on how investors rate Toast. While the company is benefiting from the trend of mobile payments and high-end take-out, it still needs a healthy economy and restaurants to continue to grow and invest in technology to thrive.

The fourth toast list of risk factors in its prospectus is the potential of Covid-19 to wreak more havoc on the economy and the wider market.

Toast acknowledges that it cannot “accurately estimate the potential impact of additional outbreaks as government restrictions are relaxed, the impact of new restrictions on shelter-in-place, or other government restrictions that could lead to new epidemics such epidemics “. effect on our clients’ ability to stay in business, each of which may have a negative effect on our business. “

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