In February, Toast (TOST:NYE), a restaurant technology company, experienced a 15.2% drop in its stock value. The disappointing financial results for 2022, which showed a 60% increase in revenue but a worse operating loss, caused investors to be concerned about the company’s profitability. However, despite the current concerns, there are reasons to be optimistic about the future of Toast stock.
Toast’s entry-level financial technology solutions segment, which has a low gross-profit margin of 21%, generated 83% of the company’s revenue in 2022. However, the real opportunity for Toast lies in its subscription services business segment, which has a gross margin of 65% and saw a 92% increase in revenue year over year in 2022. Toast offers subscription software modules that its restaurant customers can activate to address various needs, and 65% of the company’s customers were using at least four modules by the end of 2022, up from just 49% two years prior.
While Toast’s current bottom line may be challenged, the rapid adoption of its high-margin software solutions by its customers suggests a different future for the company’s profitability in three to five years. The current lack of investor appetite for cash-burning tech stocks may be a contributing factor to the recent drop in Toast stock. However, for investors who are willing to look beyond the present profitability metrics, Toast stock could be an unprofitable growth stock worth buying today.
