Toast debuts on NYSE after IPO of company valued at $ 20 billion

Shares of Toast climbed 63% when they debuted on the New York Stock Exchange on Wednesday after the technology provider to restaurants valued its IPO above its expected range.

The company, whose products are used in more than 48,000 restaurants, raised about $ 870 million when it went public, selling shares for $ 40 each. Toast had previously said he planned to price the offer at $ 34 to $ 36, after an initial range of $ 30 to $ 33.

The stock opened at $ 65.26, bringing Toast’s market cap to over $ 32.5 billion.

Toast’s IPO comes amid a business resurgence for a company that was devastated at the start of the pandemic, when restaurants were forced to close and cities across the country closed. In April 2020, Toast cut its workforce by half, and CEO Chris Comparato wrote in a blog post that the previous month, “due to necessary social distancing and government-imposed closures, restaurant sales have decreased by 80% in most cities “.

Sales rebounded quickly as restaurants turned to take-out and contactless ordering and eventually opened up to out-door dining. Toast initially provided a one-month software fee credit to its customers and provided free access to its technology that enabled takeout, online ordering, and gift card purchases. In the third quarter, revenues were on the rise again and were even higher than a year earlier, before the pandemic.

For 2020 as a whole, revenue increased 24% to $ 823.1 million. In the second quarter of this year, revenue nearly tripled to $ 424.7 million. More than 80% of that comes from what the company calls FinTech solutions consisting primarily of fees paid by customers for payment transactions. The rest comes from a combination of hardware, subscription services, and professional services.

Because it depends so much on revenue processing fees, most of it is refunded to card networks and other payment processors. Toast’s gross margin, or the revenue remaining after taking into account cost of goods sold, was 21% in the second quarter, well below that of a typical software company. With increased selling and marketing costs as well as research and development expenses, Toast’s net loss reached $ 135.5 million in the second quarter, from $ 53.7 million a year earlier.

Founded in 2012 in Cambridge, Massachusetts, Toast began to develop payment technology for restaurants and eventually developed a complete point of sale system. Before the Covid-19 pandemic, Toast thrived on helping restaurants combine their payment systems with things like inventory management and multi-location controls for restaurants with more than one location. Investors valued the company at $ 5 billion in February 2020.

After the pandemic rebounded, the company staged a secondary stock sale in November, allowing employees and former employees to sell some of their acquired stock at a price that valued the company at $ 8 billion.

As investors applaud Toast’s growth, concerns remain about the restaurant industry, especially as the rapidly spreading delta variant continues to spread across vast swathes of the country. Comparato told CNBC’s “Squawk on the Street” that he is optimistic about where restaurants are going from here.

“When we look at the delta variant and Covid in general, we think the industry has been put to the test with the Covid pandemic,” Comparato said on Wednesday. “While the Delta may slow things down, this industry is recovering and we couldn’t be more excited to lead the charge as the industry recovers and restaurants start to thrive again.”

LOOK: Toast goes public at a valuation of $ 20 billion