Shares of Toast (TOST -2.02%), the restaurant-focused tech company, were pulling back in November as investors were underwhelmed by its third-quarter earnings report. According to data from S&P Global Market Intelligence, the stock finished the month down 25%.
As you can see from the chart below, the stock fell sharply on Nov. 10 after the earnings report came out.
Toast actually got off to a good start in November with the stock jumping in anticipation of the earnings report and the initial public offering's lock-up period expiring. The stock also got a bullish analyst note from SMBC Nikko on Nov. 3, which rated it outperform with a price target of $80. SMBC analyst Andrew Bauch called Toast a "best-of-breed point of sale solution for the long-underserved restaurant industry."
But the stock gave up those gains the following week when it reported third-quarter earnings. Despite a strong report, the stock still fell 18%, tracking with a trend in growth stocks last earnings season as the market seemed to believe that many are overvalued despite strong results.
Toast's revenue soared 105% to $486.4 million, which was well ahead of the analyst consensus at $430 million, and annual recurring run-rate revenue increased 77% to $543.8 million. Gross payment volume jumped 123% to $16.5 billion, another strong sign. On the bottom line, its adjusted loss on the basis of earnings before interest, taxes, depreciation, and amortization (EBITDA) expanded from $300,000 to $9.7 million, and on a generally accepted accounting principles (GAAP) basis, the company reported a per-share loss of $1.05, which compared to estimates of a loss of $0.24.
In its outlook, management called for full-year revenue of $1.655 billion to $1.685 billion, which represents 103% revenue growth at the midpoint, and forecast an adjusted EBITDA loss of $36 million to $46 million.
The stock drifted downward over the rest of the month in line with a broader trend in growth stocks.
Toast's first earnings report should reassure investors about the company's growth potential as it tackles the massive restaurant industry. However, investors seem to have some doubts about the company's valuation in a shifting market environment and with the widening loss on the bottom line.
Investors should also be aware that the company's soaring growth rate is partly a reflection of restaurant demand bouncing back as it recovered from the pandemic. The real test for the stock will come when it offers guidance for 2022 since its growth is likely to slow substantially without those tailwinds.