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With Just 6% US Market Share, Toast’s IPO Filings Reflect Ample Upside for its Digital Point of Sale Systems

Toast is made to order, perhaps, for the parade of initial public offerings (IPOs) on Wall Street that in recent months have trained a spotlight on digital payments and on platforms.

As had been reported last week, the point-of-sale (POS) firm, which focuses on restaurant technology, filed for an estimated $100 million initial public offering that would imply a rough valuation of $20 billion.

See also: ResTech Startup Toast Files For $100M IPO At $20B Valuation 

Drilling down into the filing with the Securities and Exchange Commission (SEC), management has stated, “Running a restaurant is tough. It takes guts and determination to be in this business.” The overarching goal upon founding, the company said, has been to build a mobile app that can streamline the payment experience for restaurants.

The company said in its commentary that at the end of the latest quarter, at June 30, the company had  approximately 48,000 restaurant locations, spanning about 29,000 customers, processing over $38 billion of gross payment volume in the trailing 12 months.

The greenfield opportunity is there: there are 22 million restaurant locations globally, with $2.6 trillion in annual sales as measured in 2021.

And drilling down a bit, the company said Toast is “in the early stages of capturing our addressable market opportunity.”

Greenfield Opportunities 

The total locations served by the platform, Toast said, according to the filing, represent about 6% of the 860,000 locations in the US. The annualized recurring run rate (aka ARR) was 3% of the near-term serviceable market opportunity of $115 billion.

Gross payment volumes were up 17 percent year over year, the company said, in 2021. But in the most recent quarter, lapping the darkest days of the pandemic in the same period of 2020, the gross payments volumes surged 125 percent to $10.4 billion in the six months ended June 2021 as compared to the same period in the previous year.

The filing notes that the restaurants spent an estimated $25 billion on technology in 2019, which was less than 3% of sales.

“We expect the spend on technology to increase to $55 billion by 2024, closing the gap with other industries whose median technology spend as a percent of sales is approximately 5%,” the filing noted.

Against that backdrop, restaurants face a number of operating challenges, with low margins hovering in the 4% to 5% range. Existing technologies are inflexible in an environment where so many consumers have pivoted to digital channels and ordering across their devices.

Total revenues surged to $823.1 million in 2020, up from $665 million last year. Loss from operations widened slightly, to $220.1 million from $213.4 million in the year ago period. The subscriptions segment grew to $101.4 million from $62.4 million last year.

In detailing some of the risks inherent in the restaurant payments landscape — and in costs tied to interchange and other fees — the company said in the filing that rules related to the assessment of interchange and other fees “may be influenced by our competitors. Increases in Payment Network fees or new regulations could negatively affect our earnings.” Those Payment Network Rules may be influenced by card issuers, “and some of those issuers are our competitors with respect to these processing services.” Banks also represent competitors, the company said, as they have processing services of their own.

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