What Happened?

Shares of restaurant software platform Toast (NYSE:TOST) jumped 22.8% in the afternoon session after the company reported strong third-quarter earnings and provided an optimistic EBITDA forecast for the next quarter, which blew past analysts' expectations. 

While sales were in line with Wall Street's expectations, EPS and EBITDA beat more convincingly during the quarter. Sales growth was driven by an increase in the number of operational locations and higher SaaS revenue. This growth was further supported by the introduction of new product offerings, such as SMS marketing and branded apps, which effectively boosted customer engagement. 

Despite some pressure on annual recurring revenue (ARR), the company maintained momentum in expanding its addressable market, notably in the international and retail segments, setting the stage for sustained long-term growth​. Zooming out, we think this was a good quarter with some key areas of upside.

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What The Market Is Telling Us

Toast’s shares are quite volatile and have had 19 moves greater than 5% over the last year. But moves this big are rare even for Toast and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 9 months ago when the stock gained 21.3% on the news that the company reported fourth-quarter results that narrowly topped analysts' revenue and billings expectations. We also found the continued momentum in free cash flow promising. 

However, revenue guidance for the next quarter fell below expectations, while adjusted EBITDA guidance was roughly in line. 

During the earnings call, the company announced plans to lay off roughly 10% of its workforce, with the cuts mostly impacting non-customer-facing roles. 

As part of the plan, the company is expected to incur $45 million to $55 million in restructuring and related charges. However, in the longer term, it expects to achieve $100 million in annualized savings from the restructuring alongside lower hiring. 

Zooming out, this was a decent quarter, showing that the company is staying on target.

Toast is up 105% since the beginning of the year, and at $36.94 per share, has set a new 52-week high. Investors who bought $1,000 worth of Toast’s shares at the IPO in September 2021 would now be looking at an investment worth $591.58.

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