Toast Earnings: Net Restaurant Adds and Profitability Impress, but Software Sales Growth Slows

As we balance Toast’s better-than-expected net new location additions (5,500, or 37% annual growth, ahead of our 4,700 estimate) with guidance for slowing growth in average revenue per unit in the software business, we expect to increase our $21.50 fair value estimate by a low-single-digit percentage. While this move is shy of the market’s mid-single-digit rally in afterhours trading, it reflects our already optimistic view of the firm’s near-term growth road map and potential to increase per-unit software revenue above $10,000, a benchmark that Toast says 10% of its restaurants have eclipsed today.