Restaurants are squeezed on costs and Toast is turning that pain into a platform win

The restaurant industry is in a vise. Food and labour keep getting more expensive while guests push back on higher menu prices. Operators say ingredient costs are the top threat to profit and the trade down to eating at home keeps growing. The old fix of passing costs to customers is not working well anymore. So operators are shifting hard to efficiency. Tech adoption is now near universal across the sector with POS the most common purchase. This is the quiet change the market still underestimates and Toast sits at the centre of it as the operating system that ties workflows, payments and data into one stack.

We initiate Buy on Toast with a $44 PT

We initiate coverage of Toast with a Buy rating and a 12 month PT of $44. Our call rests on three points. First, the platform is showing durable pricing power and rising monetisation through a higher blended take rate and deeper software attach. Second, the growth engine is still adding locations at scale while moving upmarket and abroad, which extends the runway. Third, profitability and cash generation have inflected and look sustainable, which earns a premium multiple even in a tougher tape. We believe these trends are visible in the data and not yet fully priced.

What the market is missing about Toast

Most debates focus on consumer demand and restaurant traffic. We think the more important driver is the structural shift to integrated tech that cuts waste and raises throughput. Toast is winning because it is not simply a POS or a payment button. It is the core system that runs ordering, labour, payroll, inventory, delivery and front of house in one workflow. When a location adopts more modules, Toast captures more of each transaction and expands ARPU. That creates high switching costs and better economics over time.

We see evidence that pricing power and visibility are real. Net new locations were about 28,000 in 2024 and the installed base reached roughly 148,000 by mid 2025. Management flagged 24% growth in location additions in Q2 2025. Gross Payment Volume reached $159.1bn in 2024 up 26.2% y/y. ARR was $1,626mn at year end 2024 up 33.5% y/y. Adjusted EBITDA was $373mn in 2024 vs $61mn in 2023. These are not one time spikes. They reflect a flywheel where more locations drive higher GPV, a rising take rate lifts revenue faster than volume, and software attach improves gross profit quality.

Why EV Sales is the right lens for valuation

We value Toast on forward EV Sales at 3.2x FY26E. We use EV Sales because Toast mixes software and payments and this metric captures the durability of unit economics across both lines without noise from capital structure or accounting. It also aligns with how similar platforms are valued across POS and payments. Our peer frame includes Fiserv, Block, Lightspeed, Shift4, NCR Voyix and PAR. We defend 3.2x by pointing to visible take rate expansion, record net adds, recurring gross profit growth that beat guidance and a raised EBITDA margin target of 31%. Reinvestment needs are modest relative to the runway and cash conversion is improving.

Our 3.2x on FY26E revenue of $7.4bn converts to a 12 month PT of $44 from a spot of about $36 which implies c 23% upside. The multiple is sensitive to growth and margins. If growth holds above 20% with ARR above $2bn in 2025 and a clear path toward $2.6bn in 2026 we see room for 3.5x to 4.0x. If growth slips below 20% or take rates flatten or insider or competitive overhang returns we see risk to the low 2s. We lay out these paths because the market will track them tightly.

Our forecast in simple terms

We expect the platform to keep scaling without stretching the balance sheet. We model GPV of $194bn in 2025 and $243bn in 2026, a c 26% CAGR from 2024. The drivers are steady net new locations, mid single digit same store growth and a higher share of checkout as online ordering, delivery integrations, kiosks and QR move more spend onto Toast rails. International adds are early but incremental and do not cannibalise the core.

We assume a blended take rate of 2.52% by 2026. This is based on observed gains from product mix, routing and deeper attach of first party channels. It means revenue grows faster than GPV. We model total revenue at $7.4bn in 2026 and ARR near $2.6bn by year end 2026 versus above $2.05bn in 2025. These figures reflect continued high 20s ARR growth and show that the recurring engine is doing the heavy lifting while hardware acts as the on ramp.

Profitability is past the turn. Adjusted EBITDA grew to $373mn in 2024. We model c $490mn in 2025 and above $600mn in 2026 with margin moving toward 31% as scale and mix work through the P&L. The path here is clear. Sales and overhead are growing below revenues. Payments and software have better margins than hardware. Customer acquisition gets more efficient as partner integrations ramp and as upmarket wins come in larger tranches.

Cash is now reinforcing the story. FCF moved to a $93mn inflow in 2023 from a $189mn outflow in 2022. We model $200mn in 2024, $420mn in 2025 and $560mn in 2026. The reasons are higher recurring gross profit, operating leverage and disciplined capex and working capital. This matters because it reduces risk and supports reinvestment without equity raises.

On footprint we model 168,000 locations exiting 2025 and 210,000 exiting 2026. That aligns with our GPV per location and ARR path. We also model a population growth delta of 18.5% in 2025 and 14.2% in 2026. The base is larger so percentage deltas slow, but absolute adds stay healthy. We include enterprise wins that deploy in multi thousand site waves, international cohorts where SaaS ARPU uplift is about 50% in select cases and a ramping retail channel. We keep margin discipline in the model and avoid chasing low quality cohorts.

What moves the shares from here

New locations remain the clearest catalyst. Each new site turns on payments and creates a channel to attach more software over time. Third party checks continue to show Toast as a category leader in wins and go lives. Large enterprise rollouts can shift numbers quickly because a single logo can mean many locations. We expect more of these as the product set matures for multi unit operators.

ARR milestones build confidence. Crossing $2bn in 2025 and moving toward $2.6bn in 2026 would tell the market that recurring monetisation is deepening and that churn is contained. Visible ARPU gains in international cohorts and higher attach of modules such as online ordering, payroll and back office would reinforce that message.

Margins and cash conversion should support the multiple. Hitting the 31% EBITDA margin target and showing double digit operating cash conversion against peers near zero would strengthen the quality case. As more throughput shifts to first party channels and routing improves, blended take rate should tick up and flow through to recurring gross profit.

International is a smaller but real swing factor. The early signs are positive and the strategy targets English speaking markets first, which reduces product friction. Faster monetisation abroad would extend the runway and lower reliance on the home market cycle.

Why we are more cautious on valuation than the bulls

We assign a premium multiple but we recognise the risk of overpaying. From a higher starting point small misses can lead to sharp drawdowns if the market compresses the multiple faster than fundamentals change. Growth will slow as the base gets bigger and hardware revenue can mask mix gains quarter to quarter. We also watch competition. New entrants or shifts to more open stacks could narrow functional gaps. If take rates stall or if alternative providers cut price to win share the path to 3.5x to 4.0x is less likely.

We hold EV Sales at 3.2x because it balances quality and risk. It rewards the evidence of pricing power and cash inflection but keeps us honest about execution, competitive and macro variables. Our framework gives clear triggers for change. Faster revenue growth with intact margins and ARR above plan would warrant a higher multiple. Sustained pressure on growth or margins would push us lower.

Where we could be wrong

A change in market regime away from growth to value could hit the shares even with good delivery. Competition could intensify and reduce pricing power or force higher incentives. Switching costs may prove less sticky than we think if lighter stacks close gaps. Regulatory and compliance needs could rise and slow product rollouts. The Supreme Court decision that reduces deference to agencies and the EU AI Act raise the bar on AI use and data rules. That could lift costs and delay features that drive ARPU or take rate.

Embedded finance adds risk. Toast advances payroll funds and offers capital through a partner. Fraud, charge offs or a partner bank issue could dent cash conversion and raise earnings volatility. The company has an obligation to purchase some non performing Toast Capital loans up to 15% of quarterly originations which can add noise in a stress. Missteps in payments pricing or underwriting discipline would also hurt unit economics.

Our thesis would be challenged by sustained margin pressure from take rate compression, visible market share losses to scaled rivals or a step down in ROIC that signals weaker incremental returns. Any of these would likely drive multiple compression and delay the path to our PT.

Bottom line

Restaurants need efficiency more than ever and tech adoption is now mainstream. Toast has moved from a POS to the operating system that runs the modern restaurant. The metrics show durable growth, stronger monetisation and a real turn in earnings and cash. We initiate Buy with a $44 PT based on 3.2x FY26E EV Sales on $7.4bn revenue, supported by GPV of $243bn at a 2.52% blended take rate and ARR compounding in the high 20s. The upside case needs growth above 20% and margin progress, which we see as achievable given the run rate and pipeline. The risks are real at a premium, but the balance of evidence points to a quality compounder that is still early in its monetisation journey.