Barely A Week after Their IPO, Toast Brainiacs Flash Glimpse of How They’ll Meet Quarterly Projections

Just when you lose all hope in the world, the miracle workers at Toast come through again and restore your faith in humanity.

Toast management must have decided that they weren’t doing enough by bringing all the value that they do to their piggy bank restaurant customers, and that they needed to help the poor patrons of those establishments.

So, in their infinite wisdom, Toast has decided to bring a new payment offering to market.

Something brilliant, transparent, helpful, ingenious, and every other adjective that comes to mind for people of such discerning ethical caliber.

What is this new miracle offer? 

Well, Toast has decided that the only people dumber than restaurants are the people eating the food. Toast, being the benevolent folks that they are, will generously give 0.25% of their card not present processing margin back to the restaurant…

BUT, Toast will then “gift” the customer with the magnanimous opportunity to remit a “small” $0.99 fee per order directly to Toast.

Not to the restaurant: to Toast.

You should be so fortunate as to eat at a restaurant using Toast, you ingrate!

The big brains at Toast may have their fancy financing tools but here is our simple abacus math:

Toast’s average payments margin stands at 55 basis points (bps), or 0.55% of each transaction.

If Toast is refunding 0.25% or 25 bps, that’s a meager 30 basis points of payments margin for the undoubtable front runners of the Nobel Peace Prize that is the Toast team.

How generous.

But we almost forgot about that $0.99 fee per card not present order.

Whoops.

You take the $0.99 fee from the consumer and divide that by a $50 average check to get an additional 200+ bps to the good guys at Toast.

Here are specifics.

Stated another way…

Toast restaurant saves 25 basis points on an already-overpriced payments offering (Yipeee!!!)

Consumer Pays $0.99 🙁

Toast makes 230 basis points!!!

Toast takes what was a paltry and surely unfair 0.55 basis points of margin and grows it more than 4x, which to us feels like a much more appropriate alignment to the value Toast is actually contributing to society, don’t you think?

Cash Discounters, eat your heart out.

Here’s that math again with some sample numbers.

Assume a $50 average check, which we’d bet is on the higher end of a Toast merchant’s average check.

Toast’s current payments margin is 55 bps, or $0.275 of that $50 check.

Toast will refund the merchant 25 bps, or $0.125 for a card not present transaction.

Toast is left with $0.15 of margin.

Now Toast graciously charges the consumer $0.99.

Toast’s margin went from $0.275 to (drumroll…) $1.145.

That’s a 4.15X multiplier.

In absolute terms, Toast just increased their payments margin by 315% for merchants who opt-in.

SO. MUCH. VALUE.

And that’s assuming a $50 average check. Want to know what happens to smaller check sizes?

Glad you asked.

Don’t even ask how bad this is if you’re a coffee shop with a $5 average check because, without a doubt, Toast is literally making more money than you are on each of your card not present transactions if you opted in to Toast’s fee. You might be lucky to sock away 5% margins, but those wizards at Toast have found a way to make 4x as much as you do on the back of your business.

What a partnership!

And for all you Toasters that think we “hate” Toast, we’d love for you to explain how this is ethical.

No, really, go ahead and tell us how this helps society.

In fact, we can see many scenarios where Toast is making more margin than their own customers on each card not present transaction.

Here’s a simple table to show you what we mean:

That far right column shows how much more profit Toast is making than their own restaurant customer on a given transaction, acknowledging the restaurant’s average check and an assumed 5% margin (which is the same profit margin Toast quotes in their S-1).

Nice!

Everyone at Toast is getting bonuses this quarter to go with their UNICEF placards.

How the hell is Toast escaping regulatory scrutiny? Shouldn’t someone report this to the FTC? Careers are made on kneecapping this kind of moral racketeering.

We will, however, take credit for the reduction in card not present fees after our vigorous reporting of Toast’s card not present margins. Remember while Toast’s customers were dying in the pandemic?

We guess Toast must have forgotten, because how else do you explain this chart:

This is how we expect Toast will meet all their growth targets: fee their merchant to death on payments, or fee the consumer to death on surcharges. That’s especially the case when Toast needs to grow 50% a year on a $30B valuation. Inorganic M&A can work, but that’s a lot more effort than borrowing the wheel of fees from Jeff Sloan.

Toast was smart enough to call this a service fee and apply it to cash transactions to avoid scrutiny from the card networks for what is tantamount to cash discounting above the 3.99% limit for any checks under $20.

Bravo, Toast. You are quickly finding yourselves at the same table as Global Payments.

Your mothers are undoubtedly swollen with pride.