Toast on Sale?

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The handheld the server takes your order on, the card reader you tap, the software the owner uses to run payroll and reorder inventory. That's probably Toast (NYSE: TOST), an end-to-end operating system for restaurants.

Roughly one in five U.S. restaurants now sits on the platform, and the business is far stronger than it was three years ago.

In FY2023 Toast lost $246M. In FY2025 it earned $342M, on $633M of adjusted EBITDA and $608M of free cash flow (FCF). In Q1 2026 net income more than doubled, and operating income crossed 20% of recurring gross profit for the first time.

Yet the stock is down ~40% over the past year, near its 52-week low of ~$22. A year ago it traded near $50; today it’s trading around the mid-$20’s.

Why is the stock down? A few overhangs landed at once:

So the question is simple. Is a great business on sale, or does the market see something the numbers don't?

Toast (TOST) went public in September 2021, a decade after its 2011 founding. Co-founder Aman Narang became CEO in January 2024. Headcount is ~6,500, out of Boston.

Toast runs a restaurant end-to-end. Android-based software powers the point-of-sale (POS) terminals, handhelds, kitchen screens, and kiosks, all on Toast's own hardware with payments built in.

On top sit modules for online ordering, delivery, loyalty, marketing, payroll, scheduling, inventory, and lending.

Most restaurants would otherwise stitch together a separate POS, payments processor, payroll tool, marketing app, and delivery integration. Toast has one platform that does all of it.

As of March 31, 2026, ~171,000 live locations ran on Toast, up 22% y/y, and it processed $51.3B of payment volume in Q1 alone.

Most of those are U.S. restaurants, where Toast estimates it has only ~20% of the market, with the rest still to win.

Toast makes money three ways:

The number that matters most is recurring gross profit, the combined gross profit from subscription and fintech. It was $1,818M in FY2025, up 33% y/y.

Toast steers on that figure rather than revenue, because payments revenue is booked gross.

Of $6,153M in FY2025 revenue, $3,891M was just the cost of payment volume passed through to Visa, Mastercard, and the banks. That was never Toast's money, so revenue overstates the business.

Toast's take rate is the share of payment volume it keeps as recurring gross profit. It just cleared 1% for the first time, at ~1.03% of every dollar processed, up from ~0.98% a year earlier.

Toast Capital is a small add-on. A bank partner originates working-capital loans (up to $300K) that Toast markets and services, earning $51M of gross profit in Q1 (~0.10% of GPV). Toast carries some default risk, reserved at $48M, plus a "true lender" regulatory tail risk.

Toast's financial picture has completely changed in the last three years. Yet the stock is priced like it was back when Toast traded in the low-$20s and lost money.

In FY2023, Toast lost $246M on $3,865M of revenue. In February 2024 it cut headcount and took $46M of restructuring charges.

FY2024 brought the first full year of GAAP profit, $19M, with $373M of adjusted EBITDA and $306M of FCF, on revenue up 28% to $4,960M.

FY2025 scaled it. Revenue grew 24% to $6,153M. Net income jumped to $342M. Adjusted EBITDA grew 70% to $633M. FCF nearly doubled to $608M.

Two factors drove the leverage:

Stock comp is the underrated part. It was $242M in FY2025, down from $253M in FY2024, even as recurring gross profit grew a third. As a share of recurring gross profit, it fell to 11% in Q1 2026, roughly half what it was two years earlier.

Then there's how much capital it takes to earn all this.

ROIC comes out to 34%, and that understates it, because the operating business barely uses capital. Strip out the cash and securities, $1.4B at year-end 2024 and $2B at year-end 2025, and operating invested capital was only ~$130M each year.

Over that same year, operating profit went from $16M to $292M.

So Toast added ~$276M of operating profit on ~$5M of added operating capital. ROIIC on that operating base is so high it stops being meaningful.

The more useful framing credits the entire $579M equity build (idle cash included) as new capital, and even then incremental returns run ~38% (ΔNOPAT at a 21% tax, $218M / $579M).

The reason is that Toast funds growth through the income statement, not the balance sheet. The spend that drives it, sales and marketing and R&D, is expensed, not capitalized.

That’s why profit moved so fast once recurring gross profit outgrew the cost line. It’s also why those expensed dollars held GAAP profit down for years.

Two caveats on the cash story.

As Toast grows, it ties up more cash in working capital, mainly higher receivables and the sales commissions it pays upfront and only expenses later. That's a small but steady drag on how much of its profit turns into cash.

And growth isn't free. Sales and marketing rose 21% to $571M in FY2025 to drive it.

Toast reported Q1 2026 on May 7, 2026. It beat across the board and raised full-year guidance.

However, in the days after the report, TOST dropped ~15%, and analysts cut price targets (UBS to $34, Citi to $36, DA Davidson to $28).

The market looked past the beat to a Q2 margin guide that came in below consensus and a hardware cost headwind that gets worse in 2027 (more on this later).

The quarter itself was strong:

That 21% operating margin is on recurring gross profit, not total revenue, and it crossed 20% on that base for the first time, up from ~11% a year earlier.

The mix underneath was healthy. SaaS gross margin topped 80% for the first time, at 81%, up ~3 points y/y, partly from using AI on ~40% of support interactions.

GPV per location was down 1% y/y. Consumer spending at Toast's restaurants has held in a narrow band, neither accelerating nor deteriorating.

That stability matters, because most of Toast's customers are SMBs (small and medium-sized businesses), which fail at higher rates in a downturn.

COVID was the last big test. Restaurant sales fell ~80% and Toast cut half its staff to survive. But it was private and far smaller then, so the current ~171,000-location base hasn't been through a broad downturn.

On enterprise, Aman said Toast "didn't really have an enterprise business three years ago," and that Q1 2026 enterprise bookings ran ahead of its entire 2023 base. Toast reports a single segment, so it doesn't break out enterprise figures.

Toast added 7,000 net locations, a record start to Q1. FCF was $115M, up from $69M, and runs seasonally light in Q1 on bonus timing.

The raised guidance now calls for recurring gross profit growth of 21-23% (up from 20-22%) and adjusted EBITDA of $790-810M (up from $775-795M). Q2 is guided to 22-24% growth and $185-195M.

Toast is sitting on a heavy cash cushion. It ended Q1 2026 with $1,098M of cash and $672M of marketable securities ($1.77B total).

It carries no traditional debt, and nothing is drawn on its $350M revolver ($347M available). The only debt-like items are ~$17M of operating lease liabilities and an $11M warrant liability.

With $608M of FCF in FY2025, management has leaned into buybacks. The board has authorized $750M in total, $250M in February 2024 and another $500M in February 2026 as the stock fell.

Since the program began, Toast has repurchased ~$540M of stock: $56M in 2024, $107M in 2025, and $378M YTD in 2026 (14M shares, through May 6). ~$208M remains.

That’s a buyback yield of just over 2%, and the buying has been heavier at lower prices, which management called accretive. Diluted share count is already falling, from 589M at year-end 2025 to 580M at March 31, 2026.

Three factors are weighing on the stock. Two are external and likely temporary (consumer demand, hardware costs) and one is structural (competition). But none have slowed location growth or win rates, and GPV per location is down only 1%.

The bigger reason the stock is down may be the backdrop, not Toast itself. Americans are eating out less, and an oil shock is making it worse.

The slowdown was building before the oil shock. The National Restaurant Association's 2026 outlook found 40% of consumers cutting how often they eat out, and more than 60% of operators reported traffic declines in 2025.

The cause is price. Menu prices rose ~6% from early 2024 through late 2025, roughly double the ~3% rise in groceries. The result is fewer visits, even as the average check keeps climbing.

Then came the oil shock. The 2026 Iran war and the Strait of Hormuz disruption pushed oil to a four-year high near $126 and U.S. gas to ~$4.48 a gallon, up from ~$2.98 before the conflict. The IEA called it the largest supply disruption in oil-market history.

Higher gas prices pull straight from the budget that funds eating out. They also raise restaurants' food and delivery costs, which squeezes the operators Toast sells to and pushes more toward closure (42% of operators weren't profitable in 2025).

Another reason a beat-and-raise sold off is rising hardware costs.

Toast sells hardware below cost to win locations. That segment lost $220M in FY2025 and another $72M in Q1 2026 on a GAAP basis. That’s by design—a customer-acquisition cost (CAC) that pays back over years of recurring software and payments.

The new problem is memory chips. Toast's terminals and handhelds are Android computers, and each one needs DRAM (working memory) and NAND flash (storage). The same AI-data-center boom eating fab capacity has pushed memory contract prices up 80-95% in recent quarters, so each device costs more to build.

Management says the hit is temporary and not structural. The industry data is less reassuring. IDC expects the shortage to run through 2026 and well into 2027, as memory makers keep diverting wafer capacity to high-margin AI chips (HBM and DDR5) and away from the memory that goes into devices.

If memory normalizes within a year, the drag reverses and margins spring back. But management expects the hit to land bigger in 2027 than 2026:

To protect supply, Toast is buying memory ahead of need, which is why FCF conversion dips in FY2026. Inventories already rose to $136M from $114M at year-end.

The near-term hit is ~1.5 points of EBITDA margin in 2026, more in 2027, but management still targets a 40%+ long-term adjusted EBITDA margin against ~34% today.

Toast doesn't own the market, and it's worth looking at the data directly rather than taking Toast's word for it.

A January 2026 Baird Equity Research report (covered by Payments Dive) provides useful context. For restaurants below the top 250, which Baird puts at ~75% of a ~$1.1T U.S. restaurant and bar market, it estimated card-processing share as:

So Clover, not Toast, leads the small-restaurant segment, and the low end is crowded. Baird's ~145,000 is its estimate for Toast below the top 250; Toast's own reported total is ~171,000 across all segments as of Q1 2026.

Retention

The same report is more reassuring on retention. Baird surveyed 37 restaurateurs, and most said they liked their vendor and planned to expand with it, with no discussion of wanting to leave.

This is logical, as once a restaurant runs its front of house, kitchen, payroll, and payments through Toast, switching means retraining staff and risking downtime at 8pm on a Friday.

Toast doesn't publish a churn rate, but it couldn't add 30,000+ net locations a year while losing many customers to rivals. And the 10-K notes that a meaningful share of restaurants go out of business each year, so some of its churn is simply restaurants closing rather than switching.

Baird also modeled Toast growing from 134,000 locations at the end of 2024 to 244,000 by the end of 2028.

Square

Square is the rival actively pushing into Toast's turf. Its parent, Block, reported Square food-and-beverage GPV up 16% y/y in Q4 2025, and said fine-dining and other upmarket operators (the full-service segment Toast leads) are increasingly switching to it.

That's slower than Toast's 22% GPV growth, but Square moving upmarket is the signal to watch.

DoorDash

DoorDash is the wild card. It has not officially launched a POS. Analyst channel checks, including commentary on Toast's own Q1 call, report it testing one in San Francisco, Phoenix, and New York, and one forecast sees DoorDash reaching 20% of U.S. restaurants by 2035 if it launches.

For now it's a potential threat, not an active one. But because so many small restaurants already lean on DoorDash for delivery, a combined POS-and-delivery package could be hard for them to pass up.

Aman's argument is that Toast keeps winning on product depth, service, and local sales coverage, and the 22% location growth and rising win rates back it.

Toast Local

Toast’s offensive strategy is Toast Local, a consumer app and Toast's answer to the delivery marketplaces. Diners use it to find restaurants, order pickup and delivery commission-free, book tables (through Resy and Toast Tables), and collect loyalty rewards.

DoorDash charges restaurants a commission of 15-30% on each delivery order it brings them. Toast Local doesn't, which is the pitch, so the restaurant keeps far more of the sale.

Toast still makes money, just indirectly: those orders run over its payment rails at the usual ~1% take rate (the same cut it earns on any card swipe, not a marketplace fee), and the app makes the marketing software restaurants already pay for more valuable.

It's a demand-generation play that feeds GPV and ARPU, not a standalone revenue line. Weekly app downloads more than doubled last quarter.

Aman frames growth as location growth first, ARPU growth second, and AI revenue as a third source that hasn't shown up yet.

Location growth is the engine, and it’s speeding up. Toast added over 30,000 net locations in FY2025, plus 7,000 in Q1, and guided to more this year.

Management argues it's still gaining share even in its most penetrated markets. Win rates rose y/y in both full-service and quick-service in FY2025, retention is stable, and net adds have climbed every year.

ARPU growth comes from selling more modules per location. SaaS ARPU has grown mid-single digits on an ARR basis (management's figure), on top of the location count, which is how SaaS ARR grew 27% in Q1.

Newer Markets

The newer growth comes from three markets whose combined ARR doubled to over $100M in FY2025 (~5% of total ARR):

Management states each new market is growing ARR faster, and at a higher SaaS ARPU, than the core restaurant business did at the same stage of its growth.

AI is the upside the market isn't paying for. It's early and hard to size, but it could move the stock more than anything else from here.