Toast Inc. TOST shares have rallied 105.5% in the past year, outperforming the Zacks Internet - Software industry, Zacks Computer and Technology sector and the S&P500 index’s return of 27.5%, 20.8% and 21%, respectively. The stock has also outpaced industry peers, including Twilio TWLO, Cloudflare NET and Atlassian TEAM.

As one of the leading providers of software-as-a-service (SaaS) and hardware solutions focused at the restaurant market, TOST is experiencing strong traction in its fintech solutions, including integrated payment processing and allied restaurant-grade hardware. At the end of third-quarter 2024, Toast was operating across 127,000 locations worldwide.

One Year Price Performance Chart

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TOST Thrives on Location Additions and Repeat Customers

TOST is primarily expanding among small and medium businesses in the United States and plans to expand its total addressable market internationally covering enterprise restaurants and food and beverage retail. Toast is also expanding by targeting new addressable markets, including the convenience store sector with the addition of features like Electronic Benefit Transfer and Supplemental Nutrition Assistance Program payments. Toast added 7,000 locations in the third quarter of 2024, reflecting 28% year-over-year growth.

Alongside location additions and international expansion, Toast’s business is also driven by rising annual recurring revenues due to a larger share of repeat customers. Higher adoption of its solutions among customers is mainly due to its suite-based packaging model that simplifies sales and encourages customers to adopt more of the platform over time, boosting average revenue per user.

Toast’s focus on innovation has enabled it to develop AI-powered marketing suites, digital storefronts and restaurant management systems that enhance guest experience and efficiency while reducing costs. New offerings like Branded App for native iOS and Android ordering, delivery, loyalty and SMS Marketing to drive engagement and revenues are expected to provide TOST an edge over its competition.

The Zacks Consensus Estimate for 2025 revenues is pegged at $6.12 billion, suggesting growth of 24% year over year. The Zacks consensus estimates for earnings is pegged at 39 cents per share, indicating 1,186% growth year over year.

TOST also beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with an average surprise of 210.7%.

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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

50-Day & 200-Day SMA Suggest Bullish Trend

TOST shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.

TOST 50-Day & 200-Day SMAChart

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Challenges Weighing on Toast’s Trajectory

TOST’s rapid expansion of the total addressable market is coming with rising sales and marketing (S&M) expenses which were up 25% year over year in the third quarter of 2024. While TOST continues to expand its market share through upselling and U.S. go-to-market channels, its customer churn among smaller restaurants is increasing. The churn among smaller restaurants will persist due to ongoing macroeconomic headwinds increasing cost and wage pressures.

TOST is also increasing investments in research and development (R&D) to remain competitive against rivals in the fin-tech space, including Block, Fiserv and Lightspeed POS.

Toast’s core software business combines payment processing with point of sales (POS) facility. However, all of these players, including Block, Fiserv Clover and Lightspeed Upserve provide solutions like payments, online ordering and point-of-sales services providing customers increased options to choose from.

Conclusion: Hold TOST for Now

Toast is rapidly increasing its top line on the back of increasing market share. However, the company’s rapid expansion is also increasing its S&M and R&D costs. Rising costs pose a concern for the company’s long-term profitability. TOST also faces stiff competition from other established players challenging its growth.

Considering these factors, we recommend waiting for a better entry point for investors looking to enter the stock. We recommend investors to hold this Zacks Rank #3 (Hold) stock for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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