What Happened:
Shares of restaurant software platform Toast (NYSE:TOST) fell 15.2% in the morning session after the company reported third quarter earnings with revenue coming in roughly in line with expectations, while the sales outlook for the next quarter fell below Consensus estimates. The guidance for Q4 suggests a potential slowdown in GPV (Gross Payment Volume) per location, resulting in a sequentially lower adjusted EBITDA. The weakness was attributed to inflation tailwinds, a shift into new markets, and a modest slowdown in same-store transaction volume. On a positive note, It was great to see Toast improve its gross margin this quarter. It also turned cash flow positive year on year. Overall, the results could have been better.
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What is the market telling us:
Toast's shares are very volatile and over the last year have had 34 moves greater than 5%. But moves this big are very rare even for Toast and that is indicating to us that this news had a significant impact on the market's perception of the business. The biggest move we wrote about over the last year was 3 months ago, when the stock gained 12.3% on the news that company reported an impressive "beat and raise" quarter. Second quarter results came in ahead of analysts' expectations. It was also milestone quarter for Toast as it won a deal with Marriott, exceeded $1 billion in ARR, and reached adjusted EBITDA profitability and positive free cash flow for the first time since the IPO. On top of that, the company raised its revenue and adjusted EBITDA guidance for the full year, topping analysts' expectations. Overall, it was a strong quarter for the company.
Toast is down 18.2% since the beginning of the year, and at $14.20 per share it is trading 46.9% below its 52-week high of $26.76 from July 2023. Investors who bought $1,000 worth of Toast's shares at the IPO in September 2021 would now be looking at an investment worth $229.56.
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