What Happened:
Shares of restaurant software platform Toast (NYSE:TOST) jumped 21.3% in the morning session after the company reported fourth-quarter results that narrowly topped analysts' revenue and billings expectations. We also found the continuing 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 noncustomer-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.
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What is the market telling us:
Toast's shares are very volatile and over the last year have had 26 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 dropped 15.2% on the news that 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.
Toast is up 24.7% since the beginning of the year, but at $22.53 per share it is still trading 15.8% 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 $360.36.
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