Executive Summary / Key Takeaways

• Toast is solidifying its position as the leading all-in-one, cloud-based digital technology platform for the restaurant industry, demonstrating robust market share gains in its core U.S. SMB segment.
• The company is strategically expanding its total addressable market (TAM) into high-potential enterprise, international, and food & beverage retail segments, which are collectively on track to reach $100 million in Annualized Recurring Run-Rate (ARR) in 2025.
• Technological differentiation, particularly through AI-powered solutions like Toast IQ and the Toast Go 3 handheld, is a core driver, enhancing operational efficiency, driving customer value, and strengthening Toast's competitive moat.
• Toast delivered strong Q3 2025 financial results, surpassing $2 billion in ARR, achieving 34% recurring gross profit growth, and an Adjusted EBITDA of $176 million (35% margin), while raising its full-year 2025 outlook.
• With a clear path to sustained growth exceeding 20% in 2026 and expanding margins, Toast is well-positioned for long-term value creation, leveraging its core profitability to fund strategic growth initiatives.

The Restaurant Operating System of Tomorrow

Toast, Inc. (NYSE:TOST) has emerged as a pivotal force in the restaurant industry, transforming operations with its cloud-based, all-in-one digital technology platform. Since its incorporation in 2011, Toast has pursued a vertical strategy, purpose-built to serve the unique needs of the restaurant community, from independent eateries to large enterprise chains. This comprehensive platform integrates software-as-a-service (SaaS) products, financial technology solutions, restaurant-grade hardware, and a broad ecosystem of third-party partners, effectively acting as the central nervous system for front-of-house and back-of-house operations across various service models including dine-in, takeout, delivery, catering, and retail.

The broader restaurant and hospitality sector is undergoing a profound digital transformation, driven by evolving consumer expectations and the imperative for operational efficiency. This trend creates a fertile ground for integrated technology solutions that can streamline complex workflows and provide actionable insights. Toast's foundational strength lies in its deep understanding of this market, enabling it to deliver tailored solutions that resonate with restaurant operators. The company's historical journey, marked by consistent innovation and strategic market penetration, has culminated in its current position as a market leader in the U.S. SMB restaurant segment, with a clear ambition to expand its influence globally and across new verticals.

Technological Edge: Powering Restaurant Efficiency and Growth

Toast's competitive advantage is deeply rooted in its differentiated technology ecosystem, which provides tangible and quantifiable benefits to its customers. The company's core offering is an integrated cloud platform that ensures seamless data flow and operational continuity, even in challenging environments. For example, during a recent AWS (AMZN) outage, Toast's platform demonstrated resilience by enabling customers to operate in offline mode, taking orders, sending them to kitchens, and processing payments without interruption.

A cornerstone of Toast's hardware innovation is the Toast Go 3 handheld device. This latest iteration combines ToastIQ, Toast's intelligence engine, with built-in cellular connectivity, allowing staff to take orders, process payments, and print receipts seamlessly across Wi-Fi and cellular networks. The device is designed for the rigors of hospitality, being lighter, faster, more durable, and boasting a 24-hour battery life. Haywire Restaurants in Texas, for instance, lauded the Toast Go 3 as a "game changer" for improving connectivity in their multi-story concrete building and enabling sales at community events. This technological advancement directly translates into enhanced staff efficiency, improved guest experience, and increased revenue potential for restaurants.

Beyond hardware, Toast is leveraging artificial intelligence (AI) to redefine restaurant management. Toast IQ, an AI assistant for restaurant operators, has seen rapid adoption, with over 25,000 restaurants using it more than 235,000 times since its early October 2025 rollout. This AI-powered tool provides fast answers, proactive insights, and direct actions, aiming to become the "intelligence platform of the future" for restaurants. Amici, a casual pizza and wing spot, utilized Toast IQ to analyze sales, adjust menus, and identify a drink promotion costing them up to $700 a day, enabling them to build a more effective happy hour menu. Toast is also partnering with brands like Coca-Cola (KO) to increase drink sales through data-driven recommendations via Toast IQ.

The company's AI capabilities extend to marketing and advertising. Toast Advertising allows operators to launch campaigns across Google (GOOGL) and Meta (META) in minutes, complete with AI-powered recommendations and clear ROI reporting. Pizza by the Sea in Florida estimated $400,000 in sales across its four locations attributed to Toast advertising campaigns, achieving a remarkable return on ad spend exceeding 20 times.

Further enhancing back-office efficiency, Toast's xtraCHEF product suite helps restaurants manage accounts payable, inventory, and recipe costing. Reverie, a Michelin-starred fine-dining restaurant, used xtraCHEF to identify when they were overpaying for ingredients, leading them to pull lobster from their menu when prices skyrocketed, thereby preventing budget overruns. Similarly, Toast Payroll reduced Reverie's payroll processing time from three hours to one, improving accuracy. The benchmarking tool leverages Toast's extensive restaurant data to provide actionable insights; Äta, a full-service restaurant, used this data to boost its Tuesday night revenues by 40% by adding a fried chicken special. These specific, quantifiable benefits underscore how Toast's technology directly contributes to its customers' top and bottom lines, strengthening its competitive moat and driving its own financial performance through increased adoption and retention.

Dominating the Core, Expanding the Horizon: Market Strategy and Performance

Toast's growth narrative is characterized by a dual strategy: deepening penetration in its core U.S. SMB restaurant market and aggressively expanding into new, high-potential segments. As of September 30, 2025, Toast served approximately 156,000 locations, representing a 23% year-over-year increase. The company is on track to increase net adds in both 2025 and 2026, demonstrating consistent execution.

In its core U.S. SMB and mid-market restaurant business, which accounts for approximately 95% of its ARR, Toast holds about 15% market share, indicating substantial headroom for growth. The company's win rates against all major competitors are up year-over-year in both QSR and FSR segments. This success is evident in its customer base, which includes 14 of Bon Appetit's 20 Best New restaurants for 2025 and over half of all Michelin-starred restaurants in the U.S.

Beyond its core, Toast is making significant inroads into new market segments: Enterprise, International, and Food & Beverage Retail. These new areas collectively crossed 10,000 live locations in Q2 2025 and are on pace to reach $100 million in ARR by the end of 2025. Management believes these new TAMs have the potential to surpass the core business and enable Toast to scale from 156,000 locations today to 500,000 and beyond over the long term.

In the Enterprise segment, Toast has secured marquee wins with large-scale operators such as Nordstrom (JWN) (nearly 200 dining locations), TGI Fridays (U.S. footprint), and Everbowl (100+ units). Other notable wins include Applebee's (DIN) (its largest in terms of committed locations), Topgolf (MODG), Hilton Hotels & Resorts (HLT), Marriott (MAR), Choice Hotels (CHH), Potbelly (PBPB), Perkins, and Huddle House. These wins highlight the platform's versatility and its ability to serve complex, multi-location operations.

Internationally, Toast is building momentum in markets like Ireland, the U.K., and Canada, and recently launched in Australia, its fourth international market. International SaaS ARPU is up 20% year-over-year in Q3 2025, and was up 50% for locations that went live in Q4 2024, reflecting the expansion of its platform and regionalized capabilities.

The Food & Beverage Retail segment is also gaining traction, with an average ARPU already exceeding $10,000. Customers like Tri-County Meat Markets, DeLallo Italian Market, Nature's Best, Zabar's, and Kelly's Market are leveraging Toast Retail for comprehensive inventory management and efficient checkout processes. Kelly's Market, for instance, streamlined its purchasing, receiving, and inventory workflows into a single Toast system, saving its team over 10 hours a week.

Financial Strength and Disciplined Growth

Toast's financial performance in 2025 underscores its operational effectiveness and the scalability of its business model. In Q3 2025, the company surpassed a significant milestone, achieving over $2 billion in Annualized Recurring Run-Rate (ARR), with both SaaS and Payments ARR each exceeding $1 billion. Total revenue for Q3 2025 reached $1.63 billion, a 25% increase year-over-year. This growth was primarily driven by its recurring gross profit streams (Subscription Services and Financial Technology Solutions), which increased 34% year-over-year.

Subscription services revenue grew 29% year-over-year to $244 million in Q3 2025, with a robust SaaS gross margin of 79%, up from 77% a year ago due to continued COGS optimization. Financial technology solutions revenue increased 26% year-over-year to $1.345 billion, fueled by a 24% increase in Gross Payment Volume (GPV) to $51.5 billion. The fintech net take rate stood at 61 basis points, with the payments net take rate at 49 basis points, an increase of 4 basis points from the prior year, benefiting from cost optimization, targeted pricing adjustments, and new products like surcharging. Non-payment fintech solutions, primarily Toast Capital, contributed $58 million in gross profit and an 11 basis point take rate in Q3 2025, with the program remaining healthy and defaults in line with expectations.

Profitability has seen significant expansion. Adjusted EBITDA for Q3 2025 was $176 million, with margins expanding 5 percentage points year-over-year to 35%. GAAP operating income reached $84 million. For the nine months ended September 30, 2025, Toast reported a net income of $241 million and generated $467 million in operating cash flow, leading to $430 million in free cash flow. This strong cash generation is a testament to the company's efficient scaling. In 2024, Toast achieved GAAP profitability for the first time, with a net income of $19 million and $306 million in free cash flow.

Toast maintains a strong liquidity position, with $1.357 billion in cash and cash equivalents and $500 million in marketable securities as of September 30, 2025. The company also has access to a $350 million revolving credit facility, with $346 million available. This robust financial health supports its ongoing investments and a share repurchase program, which had approximately $140 million remaining as of Q3 2025. The dollar-based payback period remained in the mid-teens months in 2024, demonstrating the efficiency of its customer acquisition model.

Competitive Arena: Toast's Differentiated Stance

Toast operates in a highly competitive and rapidly evolving environment, facing a diverse set of rivals from legacy on-premise systems to broader cloud-based technology providers. However, Toast's unwavering vertical strategy and deep specialization in the restaurant industry provide a distinct competitive advantage.

Against legacy on-premise solutions in the enterprise segment, Toast leverages its modern cloud-based technology, which offers superior operational efficiency and scalability, rather than competing primarily on price. Its mature capabilities, including enterprise configuration management, robust security, and open APIs, are proving instrumental in securing large-scale deals.

Compared to broader SMB and payment providers like Square (SQ) (Block, Inc.), Lightspeed Commerce (LSPD), Shopify (SHOP), and Shift4 Payments (FOUR), Toast's differentiation is clear. While Square offers user-friendly, integrated financial services, Toast provides deeper, restaurant-specific integrations, such as advanced kitchen display systems and integrated delivery management, which are more tailored for complex restaurant workflows. This specialized ecosystem fosters greater operational efficiency in areas like order management and staff coordination, potentially leading to stronger customer loyalty.

Against Lightspeed Commerce, which focuses on omnichannel solutions for retail and hospitality, Toast's offerings often provide more seamless operations for high-volume dining environments, with a focus on hospitality analytics. Similarly, while Shopify excels in e-commerce enablement, Toast's integrated, restaurant-centric solutions are designed for superior performance in physical dining scenarios. In comparison to Shift4 Payments, a payment processing specialist, Toast's comprehensive software suite offers more streamlined integration for restaurant payments and broader management capabilities.

Toast's competitive moat is built on its proprietary technology ecosystem, which includes its integrated platform and data-driven AI tools, and strong network effects within the hospitality sector. The company benefits from employee preference for its intuitive systems and a robust referral channel. While Toast's specialized focus could be seen as a vulnerability compared to the broader diversification of some rivals, its deep expertise and continuous innovation in restaurant technology allow it to win against both legacy and diversified tech players.

Outlook and Investment Implications: Fueling Future Value

Toast's management has provided a compelling outlook, reflecting confidence in its strategic direction and operational execution. For Q4 2025, the company expects total fintech and subscription gross profit to grow in the range of 22% to 25% year-over-year, with adjusted EBITDA projected between $140 million and $150 million. Building on its strong year-to-date performance, Toast raised its full-year 2025 outlook, now anticipating 32% growth in fintech and subscription gross profit and $615 million in adjusted EBITDA at the midpoint.

Looking further ahead to 2026, Toast aims to sustain growth over 20% at its multi-billion dollar scale, with an ambition to exceed this target. Margins are expected to be flat to slightly up year-over-year, underpinned by the core business operating at its target 40% EBITDA margin, which provides the flexibility to invest in new growth engines. These investments are strategic, targeting market leadership and healthy unit economics in the new TAMs. Management anticipates increasing net location adds in both 2025 and 2026, driven by consistent performance in the core and growing contributions from new segments.

The underlying assumptions for this outlook include stable consumer trends, though a slight normalization was observed in October 2025 after a strong summer. Management maintains a balanced view of Gross Payment Volume (GPV) given macro dynamics, and remains confident in the resilience of restaurants. Ongoing cost optimization efforts, targeted pricing adjustments, and new products like surcharging are expected to contribute to a sustainable improvement in take rates. While higher tariff expenses related to hardware are anticipated in the second half of 2025, these are deemed manageable due to supply chain diversification.

Risks and Considerations

While Toast's growth trajectory is compelling, investors should consider several risks. The company remains susceptible to broader macroeconomic conditions, including fluctuations in inflation, interest rates, and consumer spending, which can impact the restaurant industry. Seasonality in financial technology solutions revenue, largely driven by GPV, can also lead to quarterly fluctuations, with stronger performance typically seen in the second and third quarters. Although Toast has diversified its supply chain, geopolitical events and changes in trade policy, such as tariffs, could still influence hardware costs and consumer demand. The competitive landscape is intense and rapidly changing, requiring continuous innovation and strategic execution to maintain market share. Furthermore, current valuation metrics, such as a Forward P/E ratio ranging from 44.67 to 49.07, suggest Toast is trading at a premium to its industry peers, implying high investor expectations for future growth and profitability.

Conclusion

Toast, Inc. is executing a powerful strategy that positions it as a leader in the digital transformation of the restaurant industry. By leveraging its purpose-built, all-in-one cloud platform and pioneering AI-powered solutions like Toast IQ and Toast Go 3, the company is not only deepening its penetration in the core U.S. SMB market but also successfully expanding into high-growth enterprise, international, and food & beverage retail segments. This technological leadership translates into tangible benefits for restaurants, driving operational efficiency, increasing sales, and enhancing guest experiences, thereby strengthening Toast's competitive moat. The company's robust financial performance, marked by accelerating ARR growth, expanding profitability, and strong cash flow generation, provides the necessary capital to fuel these strategic initiatives. With a clear vision for sustained growth and disciplined investment, Toast is poised to capture a significantly larger share of its expanding total addressable market, offering a compelling long-term investment thesis for those seeking exposure to the evolving landscape of hospitality technology.