Toast (TOST), mcap=$10bn, price $19.91 vs $18.40

TOST pitch:
– Toast is a vertical software platform for restaurants, including POS, inventory management and payroll.
– Restaurant industry lags in technological adoption, with legavy clunky providers still holding significant market share.
– An EMV-induced POS upgrade cycle in 2015 will result in higher-than-expected demand over the next two years.
– TOST set to reach >50% of the market by the end of the decade.

– TOST’s subscription platform is under-monetized with customers spending only 1/3 of potential ARPU.
– High customer attach rates due to lock in into mission-critical restaurant workstreams.

TOST valuation:
– Trades at 1.5 turn premium to vertical SaaS peers due to its much faster expected revenue growth (42% CAGR for 2022-2024).
– Base case at 9x forward gross profit, would result in 30% IRR through the end of 2025.

Exp. gain: +120% to $42/share by 2025.

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