Toast: CEO Transition Shouldn’t Alter Roadmap; We Maintain Standard Capital Allocation Rating

Narrow-moat Toast TOST announced on Sept. 5 that CEO Chris Comparato will step down from both his executive and chairman responsibilities on Jan. 1, 2024, in a detail-light news release. He will be replaced as CEO by Aman Narang, one of Toast’s co-founders, who has been extremely hands-on in a suite of cross-functional roles spanning marketing, sales, business development, relationship management, fintech, and operations, per Restaurant Business, and has worked with the company since co-founding it in 2011. Mark Hawkins, the former Salesforce co-CEO and the leading independent member of the board, will step into the chairman role. We don’t anticipate making any changes to our Standard capital allocation rating or our $21 fair value estimate in response to the move and view shares as fairly priced.

Comparato’s tenure spanned eight years, overseeing the firm’s hypergrowth phase as it expanded from just a few hundred customers to north of 93,000 at the most recent quarter’s end, reaching more than 10% of restaurants in the firm’s home U.S. market. While his work in building arguably the most comprehensive global restaurant technology platform is laudable, his tenure winds down with a large, public misstep, with the firm rolling out an extremely controversial $0.99 fee for digital transactions over $10 with its partner restaurants that resulted in widespread backlash. We suspect that the move is at least partially tied to that error, which the firm quickly rolled back (sending shares plummeting 15% in July 19 trading).

Moving forward, we continue to expect Toast’s strategic roadmap to remain similar—investing behind its international expansion, in the ongoing development of its swelling suite of software tools, and toward new restaurant acquisition.