Thread by @jasonlk

So Toast is now worth a stunning $27B!

And it's growing a stunning 118% at a $3B run rate

But the overall margins are low (21%), they lose money on services and hardware, and barely make money on payments

Is it SaaS?

5 Interesting Learnings: 🔽🔽🔽🔽🔽

#1. With gross margins of only 21%, is Toast really a software company? Not yet. Not today.

While its software has decent margins of 66%, software is only 10% of Toast’s total GAAP revenue.

It loses money on the hardware (gross margin negative) and payments have barely a 20%+ margin and constitute the vast majority of revenue today. It would take a lot of work for Toast to hit the 60% gross margin standard to be a true software company

#2. Incredible acceleration around Year 6.

Toast exploded around Year 6-7, and you can see an incredible power-law curve taking off. But it took 6+ years to get there. The company exploded from 3,000 restaurant locations in 2016 to 40,000 in 2020. Wow.

#3. Mediocre margins in payments.

Fintech is hot, and adding payments to a SaaS solution has turbocharged Shopify, Bill, Wix … and Toast. But Toast sure doesn’t make all that much money on payments yet. The margins here are only 22%.

#4. Historical CAC of 18 months, down to 15 months by IPO.

Not that high, but the margins force you to make sure you get it right. NRR is strong, however (see next point)

#5. NRR of 114% — but took 4 years to get to 100%.

114% is pretty good for their deal size. But like many of us, it took them while to cross 100% NRR. A reminder many Cloud leaders started off with lower NRR than they ended up at IPO (see, also, Shopify, HubSpot, etc)

And a few bonus notes:

#6. 29,000 Customers and 48,000 Locations.

That’s a little more than a $65k revenue per customer on average. But again, payments is the vast majority of this revenue. True software subscriptions are just $6k a year or so, on average.

#7. 734 employees in sales and marketing (out of 2,200 total), and 669 in customer success.

It’s hands-on sales and hands-on support for Toast. 30% of the company does support alone.

#8. Founders are billionaires -- but a relatively dilutive journey.

It’s been a capital-intensive business with those lower margins and hardware. The co-founders now own 7% and 5% each (Fredette and Narang), and the outside CEO 2.4% (Comparato) plus more grants.

A deeper dive here:

saastr.com/5-interesting-…