Toast Earnings: Strong Results Despite Tough Restaurant Environment but Shares Overvalued

Narrow-moat Toast delivered strong third-quarter results, with revenue reaching $1.31 billion, edging our $1.29 billion forecast, while adjusted EBITDA of $113 million comfortably surpassed our $80 million estimate. The 28% year-over-year revenue growth was fueled by the sequential addition of 7,000 restaurants, exceeding our forecast for 6,500. Also propelling the outperformance was software revenue per unit surging 12.1% annually, materially above our anticipated 5.3% growth. The difference was largely driven by enhancements to the billing infrastructure that facilitated higher revenue conversion—we expect much of that increase to be nonrecurring.