Business Breakdowns

Toast: Sticky SaaS - [Business Breakdowns, EP.247]

49 min

This episode of Business Breakdowns features Sean Barrett of Counter Global discussing Toast, the leading point-of-sale and software platform for the restaurant industry. The conversation covers Toast's evolution from a hyper-growth, unprofitable business to a highly profitable category killer with expanding total addressable markets, its competitive advantages including hardware and domain expertise, and its attractive valuation amidst the 'SaaS apocalypse' debate.

Summarized by Podsumo

🎧 Listen 🎙️ Ask about this episode

✨ Key Takeaways

1

Toast is a category killer for restaurant point-of-sale and software, acting as the full operating system for its customers with high retention rates and a net promoter score of 50.
2

The business has transformed since 2020, growing from a single-tam, unprofitable firm to one with $2 billion in recurring gross profit, 35% EBITDA margins, and five new tam (enterprise, grocery, hospitality, gas stations, international).
3

Toast's AI offering, Toast IQ, is driving customer value and internal efficiencies, with features like automated marketing (Toast Grow) that provides a 20x ROI for customers.
4

The business wins roughly 50% of new restaurant openings in the US and has a 'flywheel' effect in cities where market share accelerates past 10% penetration.
5

Sean Barrett argues Toast trades at an attractive 18 times 2027 GAAP earnings, offering a potential 4x to 10x return over the next decade given its durable 20%-plus growth compounding.

💬 Notable Quotes

"AI is the best thing to happen to Toast since they're founding probably. Product has always had advantages versus the incumbents and versus the competitors. But you fast forward today, the product has substantial data advantages."
"We always come back to what we call the laws of physics here at counter global... Toast is a mission critical operating system. They have strong network effects. The industry is standardizing on this platform. They have huge data advantages."
"What you had five years ago was a single-tam, highly unprofitable, hyper-growth business. Fast forward, this business has been a 97th percentile grower for the last three years in public markets."