Restaurant management software provider, Toast, delivered a bittersweet announcement on Thursday, declaring that it will be parting ways with 550 employees, equating to approximately 10% of its workforce. However, the company managed to surpass Wall Street’s expectations with its fourth-quarter earnings report. The tech industry has witnessed numerous companies implementing layoffs in 2024, primarily attributing them to declining sales and economic uncertainties. Cisco, for instance, declared its intention to eliminate 4,000 jobs due to a decrease in revenue and a cautious approach by clients regarding spending habits.
Although Toast initially experienced a surge of up to 16% in after-hours trading, the company’s shares gradually returned to their pre-announcement levels. Analyses compared Toast’s performance against LSEG’s poll of industry experts, revealing the following results:
– Earnings per share: A loss of 7 cents per share, exceeding the estimated loss of 11 cents per share.
– Revenue: $1.04 billion, while analysts anticipated $1.02 billion.
Toast noted a significant rise in revenue, with a year-over-year growth of almost 35% during the fourth quarter. Furthermore, the company managed to reduce its net loss from $99 million to $36 million when comparing it to the same quarter in the previous year. In a significant move, Toast has designated $250 million for share buybacks, thereby emphasizing their confidence in the long-term potential of the company.
As the COVID-19 pandemic prompted restaurants to adopt digital solutions, such as Toast’s mobile ordering and payment tools, the company’s revenue doubled. This success led to their IPO on the New York Stock Exchange in 2021. However, since then, the demand has cooled down, dropping to 37% in the third quarter and approximately 45% in the second quarter. Toast confronts mounting competition from prominent players like Block, Fiserv, and Shift4, as highlighted in a December note by Bank of America analysts who downgraded their rating on Toast’s stock from buy to neutral.
Despite the intensifying competition, Toast continues to witness growth in transactions utilizing its products. Gross payment volume reached an impressive $33.70 billion, indicating a 32% increase and surpassing the consensus estimate of $33.53 billion gathered from analysts surveyed by StreetAccount.
To navigate through the challenges that lie ahead, Toast has opted for recent corporate restructuring and layoffs. These actions are forecasted to incur charges amounting to $45 million to $55 million, primarily during the first quarter, while also yielding an annualized saving of $100 million. Notably, these adjustments occurred shortly after Aman Narang, Toast’s co-founder and COO, replaced Chris Comparato as the CEO. Under Comparato’s leadership, Toast initiated a 99 cents fee for online orders exceeding $10, a measure that received significant backlash from consumers and restaurant owners. Consequently, Toast was compelled to retract the surcharge due to mounting objections.
Toast’s recent developments reflect its mixed fortunes. While the company achieved positive financial performance, it unfortunately had to announce a significant reduction in its workforce. As Toast faces increased competition and a decline in demand, these strategic decisions aim to position the company for a more sustainable future in the ever-evolving landscape of restaurant management software.
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