Can Toast Sustain Healthy Net Additions in Q2 and Beyond?

Toast Inc TOST kicked off 2025 with strong momentum, registering more than 6,000 net locations in the first quarter of 2025. It ended with approximately 140,000 total customer locations globally at quarter-end, reflecting 25% year-over-year growth. Management expects to post record net adds in the current quarter and 2025 is now expected to top 2024’s full-year net additions. But can it sustain this pace?

Toast is deepening its presence in the core U.S. SMB restaurant market. Wins like Applebee’s and Topgolf reflect that its momentum is strong. TOST has only 10% penetration into its 1.4 million location TAM, thereby offering a substantial long-term expansion opportunity. Apart from this, the company is making progress in three new growth vectors: enterprise, international, and food & beverage retail. It has set a target to cross 10,000 locations by the end of 2025 across these three new growth areas.

Toast’s AI-powered tools like Sous Chef and ToastIQ are positioning it to stay ahead of the curve in restaurant technology. The company also enhanced reporting, payroll and accounting tools, and introduced a Benchmarking tool to help restaurants manage costs and gain insights. This transition to a full-stack solutions provider bodes well. All these factors are expected to aid Toast keep its growth story cooking well beyond the current quarter.

Toast now projects 26% growth in fintech and subscription gross profit for 2025 at the midpoint, while adjusted EBITDA is now estimated at $550 million, with a 31% margin, an increase of five percentage points from 2024.

Management highlighted that it was closely monitoring the macro environment and emphasized restaurants' ability to navigate macro challenges. Nonetheless, the restaurant industry is still highly sensitive to consumer spending, labor inflation and supply chain volatility. A consumer downturn or cost pressures could reduce restaurant spend on technology, thereby impacting TOST’s performance.

Let’s Take a Look at the Strategic Maneuvers of Competitors

Lightspeed Commerce Inc.’s LSPD strategic pivot toward North America’s Retail and Europe’s Hospitality, two verticals with high potential, bodes well. In the last reported quarter, customer locations in these growth markets increased more than 3% year over year, while GTV for these customers rose 6%, despite the pivot only ramping up in December 2024. Lightspeed is heavily investing in innovation to enhance its platforms, allocating 35% more in product development in fiscal 2026 than in fiscal 2025.

Within retail, some of the innovations include a generative AI-powered web builder, omni gift cards, sales visualization, improved operational control and online reach for clients (including seasonal trends and inventory planning tools). For Hospitality, key innovations include Google integration with “order anywhere,” advanced production instructions and consolidated items features.

Block, Inc. XYZ offers financial and marketing services through its comprehensive commerce ecosystem that helps sellers to start, run and grow their businesses. Square for Restaurants is a subset of its larger ecosystem, which competes directly with TOST’s offerings. This vertical software solution is designed for both quick-service and full-service restaurants and includes table, order and course management, a kitchen display system, as well as revenue and cost reporting.

In the last reported quarter, management noted that Square’s performance was driven by strength in core verticals like food and beverage, and retail. Strong Square ecosystem accounted for $1.48 billion in transaction revenues, up 5.9% year over year.

TOST Price Performance, Valuation and Estimates

Shares of TOST gained 13.9% year to date compared with the Internet-Software industry’s growth of 14.2%.

In terms of price/book, TOST’s shares are trading at 12.34X, lower than the Internet-Software industry’s ratio of 6.49X.

The Zacks Consensus Estimate for TOST’s earnings for 2025 has been unchanged over the past 30 days.

TOST currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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