This is about Toast, a company that evolved from a restaurant POS system into an operating system for restaurants, handling orders, inventory, and marketing. The guest, Sean Barrett, is very bullish on Toast, calling it cheap with huge upside. Key holdings: Toast (fast profit growth, stock at $22, he sees $50), Square (simple, low-end), and DoorDash (struggling to compete because Toast saves restaurants more money).
Toast (Toast) — This report revisits the restaurant SaaS company. Guest Sean Barrett (Chief Investment Officer of Counter Global) argues that Toast is essentially a restaurant "operating system," rather than a payment terminal with embedded software. The core thesis is that Toast, through years of b
In this episode, guest Sean Barrett (Chief Investment Officer of Counter Global) revisits Toast, arguing that the company has evolved from a restaurant POS system into a restaurant "operating system." Core thesis: Toast possesses a wider moat than ever in the AI era, and its 18x GAAP P/E on 2027 earnings is "unusually cheap" for a company with 25%+ gross profit growth and 30%+ EPS compound growth, with a potential 4-10x investment return.
Sean Barrett argues that Toast is fundamentally a restaurant "operating system," not a payment terminal with software, and its moat stems from a triple barrier of hardware, a multi-tenant SaaS platform, and a field sales team.
Toast currently has an enterprise value of approximately $12 billion, with annualized recurring gross profit of about $2 billion, an EBITDA margin of roughly 35%, and extremely low capital expenditure. In 2020, EBITDA was still deeply negative and stock-based compensation accounted for over 30% of revenue; today, it has achieved "97th percentile growth" (compared to all listed companies) while margins have turned significantly positive.
Barrett uses a "laws of physics" framework to analyze Toast’s moat:
1. Hardware Barrier: Toast builds its own proprietary hardware (kitchen display systems, Toast Go handheld devices) that can withstand water, liquids, and high temperatures. Competitors have tried to "cut corners" with iPad-based solutions, but iPads frequently break down in restaurant environments. "The shortcuts those competitors took at the start ultimately led to their decline."
2. Multi-Tenant SaaS Advantage: Toast can code once and deploy updates in real time to all customers. In an environment where AI models are updated weekly, competitors using on-premise deployment need to send technicians to each restaurant to update servers, making the cost uneconomical.
3. Field Distribution Network: Toast has field sales teams in every major U.S. city, continuously visiting restaurant owners. Barrett cites an example: a high-profile AI-native startup trying to replicate Toast’s product "still needs at least two years to produce something comparable to Toast, and then must build a supply chain, hardware, and field team."
Sean Barrett believes AI is the "best thing" to happen to Toast since its founding, simultaneously widening the product moat and creating new revenue streams.
1. Toast IQ (Conversational AI): Customers can query real-time data, modify menus across locations, and manage inventory using natural language. Approximately 50% of customers use it weekly.
2. Toast Grow (Automated Marketing Engine): Leverages historical data and data from nearby restaurants to automatically predict low-traffic periods and execute promotions (SMS, website, Instagram) for a monthly fee of approximately $500.
Over the past two years, Toast's revenue has doubled, yet R&D expenses (in dollar terms) have remained roughly flat. Management states it will continue to invest, but AI has already significantly boosted internal R&D efficiency.
Sean Barrett argues that Toast captures approximately 50% share of new restaurant openings in the U.S., and the competitive landscape is evolving in its favor.
| Tier | Representative Companies | Market Share | Key Characteristics |
|---|---|---|---|
| Traditional On-Premise | NCR, Aloha, Oracle Micros | ~50% | Local servers, unsuitable for kitchen environments |
| Modern Competitors | Square | 5-10% | Low-end market, simpler functionality |
| Modern Competitors | Clover (Fiserv subsidiary) | ~15% | Innovation stalled, losing share |
| Potential Threat | DoorDash | Pilot stage | Faces the "innovator's dilemma" with Toast's free delivery |
Barrett's team conducted field research: a colleague visited 30-40 restaurants in San Francisco that use both DoorDash delivery and Toast POS, asking, "If DoorDash offered POS for free, would you switch?" — Not a single customer was willing to switch.
Core reason: DoorDash delivery commissions are approximately 13-15%, while Toast partners with Uber Eats to offer free delivery (from the restaurant's perspective), with 80,000 customers already signed up. Switching from DoorDash to Toast saves 50 basis points in payment costs, but DoorDash's delivery commissions are far higher.
Toast currently has approximately 160,000 locations, of which about 150,000 are in the core U.S. SMB market. Barrett believes growth comes from the stacking of five TAMs:
1. Core SMB Restaurants: Approximately 800,000 restaurants in the U.S., Toast's share ~20%, annual industry natural churn rate ~15% (about 100,000-120,000 closures and reopenings), Toast wins ~50% of these.
2. Enterprise Customers: Has already won large chains such as Applebee's.
3. Grocery/Liquor/Gas Stations: New market entry, main competitors are legacy technology.
4. Hotel Dining: Has already won customers like Marriott.
5. International Markets: Already entered the UK, Ireland, Canada, and Australia; Barrett notes, "These markets are growing faster than Toast did when it started in the U.S."
Target: Grow from the current $2 billion in gross profit to over $10 billion by 2035.
| Valuation Method | Key Data |
|---|---|
| 2027 GAAP P/E | 18x (lower after adjusting for cash) |
| 10-Year MOIC (Bear Case) | ~4x (assuming extremely low valuation in 2035) |
| 10-Year MOIC (Base Case) | ~10x (assuming NASDAQ market average multiple) |
| DCF Intrinsic Value | ~$50/share vs. current ~$22-23 |
1. Macro Risk: The restaurant industry only declined by low single digits in 2008-2009, showing overall resilience.
2. Churn Rate: As Toast's market share expands, will customer churn increase? No significant change observed so far.
3. ARPU Pricing Power: Barrett believes Toast grows ARPU through high-ROI products (e.g., Toast Grow) rather than pure price increases.
4. Competition: Continuously monitored through customer surveys and field visits.
| Position | Analyst View | Key Data |
|---|---|---|
| Toast | Bullish (one of the largest holdings, 15% position) | $2 billion gross profit, 35% EBITDA margin, 18x 2027 GAAP P/E, target $10 billion gross profit |
| Square | Neutral (low-end market, simpler features) | ~1% net take rate (vs Toast 0.49%) |
| Clover (Fiserv) | Risk warning (innovation stalled, market share loss) | ~15% market share |
| DoorDash | Risk warning (facing innovator's dilemma) | Delivery take rate 13-15%; Toast's free delivery has signed 80,000 customers |
| NCR/Aloha/Oracle Micros | Risk warning (legacy on-premise, clear disadvantage) | Combined ~50% market share |
1. "AI is the best thing to happen to Toast since its founding. Because of multi-tenant SaaS, Toast can deploy AI updates in real time, while competitors' on-premise solutions require sending technicians to each restaurant to update servers—this is neither economical nor realistic." — Sean Barrett
2. "The profit margin of Toast's customer restaurants is approximately 15%, compared to the industry average of about 10%. This means Toast's customers earn 50% more profit, making them more likely to survive, which directly reduces Toast's customer churn rate." — Sean Barrett