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Toast Seeks $18 Billion Valuation With Its IPO

Written by Monica Savaglia
Posted September 21, 2021

Over the pandemic, the only way for most of your favorite restaurants to operate and survive was to adjust the way they’ve been doing business.

During the COVID-19 pandemic, state governments imposed restrictions on business owners in addition CDC guidelines on how to safely operate. This forced businesses to create new ways to deliver their services to customers.

Last year, a few months into the pandemic, most of my local coffee shops, restaurants, and bars had to find some way that they could still make money and keep their businesses alive. They couldn't afford to wait around for the pandemic to be over because no one knew how long it was going to last.

These businesses had to implement new ways to serve their customers, such as giving customers more options, offering outside dining, and allowing them to order ahead for pickup.

And for some businesses, that meant embracing new-ish technology like contactless payment software and hardware, restaurant management, and payment solutions that would give customers the ability to order ahead and pick up when the order is ready and help restaurant owners to manage these orders effectively. 

Tech to Save Restaurant and Hospitality Industries

This kind of technology helped businesses prepare orders in a way that was manageable for them and still provide a service to their customers that hopefully was painless and easy so they would come back to the business.

Even before the pandemic, I noticed that this kind of technology was being used in some of the newer places throughout the city. The pandemic gave a big push to those older businesses that may have been a little resistant to new technology and apps to help with the business. 

Toast was one of the tech companies giving these restaurants, bars, and coffee shops the opportunity to stay open and let their customers place their orders for pick up with ease. Toast is a financial technology company that offers cloud-based restaurant-focused payment software. Its software provides businesses with restaurant management and a point-of-sale system.

The company is headquartered in Boston, Massachusetts, and was founded back in 2012 by Steve Fredette, Aman Narang, and Jonathan Grimm with the aim of simplifying some of the antiquated processes that are involved in managing and operating a restaurant, especially for businesses that are still reliant on paper solutions or multiple systems that don’t connect with each other, which could make day-to-day operations unnecessarily complicated.

Toast Prepares for Its IPO on Wednesday, September 22

Toast has been planning for its initial public offering (IPO), which could push Toast’s valuation to around $16.5 billion. That would be double the valuation from its secondary share sale last November.

Toast plans to make its market debut tomorrow, September 22. It plans to list on the NYSE with the symbol “TOST.” 

As I’m writing this, its target IPO price range is between $34 and $36 per share. However, that could change before tomorrow depending on how the underwriters of the IPO the company feel about the demand for its shares. Its lead underwriters include Goldman Sachs, Morgan Stanley, and JPMorgan, and the company is set to sell 21.7 million shares.

Inside the Toast’s prospectus, it describes its mission as:

To empower the restaurant community to delight their guests, do what they love, and thrive. 

Toast has been able to grow significantly in the past year despite the hardships caused by the pandemic for the restaurant and hospitality industries. The company has been able to carve out a niche for itself that has massive potential for growth and market leadership. And as long as it can provide a product that is useful and beneficial to these important industries, future success could easily be in the company's future. 

In its prospectus, the company went on further to explain why it became what it is today. Toast said:

We set out to change this dynamic with the same unrelenting enthusiasm it takes to start a restaurant. Our vision was to build a highly scalable, end-to-end, cloud-based restaurant management platform that would improve the odds of success for the hardworking people who fuel this community. 

According to the National Restaurant Association’s 2021 State of the Restaurant Industry report:

Takeout and delivery have become a part of Americans’ routines. Today, 68% of consumers are more likely to purchase takeout from a restaurant than before the pandemic, and 53% say takeout and delivery is essential to the way they live. 

Toast Grows Its Revenue in 2021

Toast cites that there are about 860,000 restaurant locations in the U.S. and these businesses have spent about $25 billion combined on technology in 2019. Toast is forecasting that this spending could increase to $55 billion by 2024, especially with this massive push from the coronavirus pandemic and the growing demand from customers who have grown accustomed to ordering from their favorite restaurant through platforms like the one that Toast offers. 

In the first six months of 2021, Toast earned up to $23.4 billion in revenue, which was an increase from the $10.4 billion of the first six months of 2020. The company earns its revenue from its subscription offers, payments, hardware, and professional services. The company’s annual recurring revenue soared 118% in the second quarter from the previous year, to $494 million. 

In Toast’s prospectus, it describes some risk factors associated with the company’s business model, saying:

This amount [payments revenue] may vary, depending on, among other things, the success of our customers’ restaurant locations, the proportion of our customers’ payment volumes processed through our platform, ticket size, consumer spending levels in general, and overall economic conditions. 

Toast’s IPO is expected to raise near $700 million at the high end of its range. It’s also important to note that the company has reported in its latest quarter a net loss of $135.5 million.

The company is riding the wave of a successful IPO market in 2021 and the investor interest in financial technology companies, especially ones that serve restaurant and hospitality industries, as it appears that these businesses won’t be returning to the way they operated pre-COVID. Toast is expected to make its market debut tomorrow, September 22 — you might want to keep an eye on this IPO.

Until next time,

Monica Savaglia Signature Park Avenue Digest

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.

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