Toast Swings to Q1 Profit: Growth Amid Growing Pains?

Toast Inc. (NYSE: TOST) marked a pivotal moment in its evolution with its first-quarter 2025 results, achieving its first net profit since its 2020 IPO. The company reported a $56 million net income, a stark reversal from an $83 million loss in the same quarter last year, while revenue rose 24.4% to $1.34 billion. Yet beneath the surface, the report revealed a complex story of progress and challenges, leaving investors to weigh whether Toast’s long-term promise outweighs its near-term execution hurdles.

The Good: Profitability and Scalability Take Root

The most striking development is Toast’s achievement of GAAP profitability, a milestone that underscores its operational discipline. The company’s adjusted EBITDA surged to $133 million, far exceeding estimates, and its non-GAAP diluted EPS turned positive for the first time in years. This turnaround is fueled by its subscription-based SaaS model, which generated $1.71 billion in annual recurring revenue (ARR), a 31.3% jump year-over-year. The ARR growth outpaces total revenue expansion, signaling that Toast’s core product—its integrated platform for restaurants—is becoming a more predictable revenue stream.

The company also expanded its customer base by 25% year-over-year to 140,000 locations, including a landmark deal with Dine Brands Global to outfit Applebee’s nationwide. Gross payment volume (GPV) hit $42.2 billion, up 22%, reflecting both its customer growth and deeper integration into clients’ operations.

The Bad: Profitability Pressures and Execution Hurdles

Despite these positives, the report highlighted clear challenges. Toast missed revenue estimates by $10 million, and its non-GAAP EPS of $0.09 fell far short of the $0.19 analysts expected. The culprit? Rising costs. Customer acquisition costs (CAC) turned unprofitable, with sales and marketing expenses outpacing revenue from new customers—a red flag in a competitive payments space.

Meanwhile, gross payment volume per location dipped, likely due to seasonal disruptions like wildfires and weather events. International expansion, a key growth lever, remains in early stages, with 25% year-over-year global location growth still translating to a small fraction of total operations.

Market Reaction: Optimism Meets Skepticism

Shares rose 3.9% post-earnings, driven by the EBITDA beat and net income turnaround, but the stock remains volatile. Analysts remain divided: the average price target of $41.17 implies 12% upside from current levels, while GuruFocus warns of a potential 12% downside to $32.25. The disconnect reflects two narratives: one betting on Toast’s path to sustained profitability, the other questioning its ability to manage costs and maintain customer growth.

The Bigger Picture: Toast’s Long Game

Toast’s value hinges on its ability to scale its SaaS platform while controlling expenses. The launch of ToastIQ, an AI-driven analytics tool, aims to deepen customer retention by providing real-time operational insights. Enterprise deals like the Applebee’s partnership could also boost margins, as larger clients typically generate higher recurring revenue.

However, the company’s recent CAC struggles and GPV per location decline highlight execution risks. If Toast can’t reverse these trends, its path to the $550 million full-year EBITDA guidance could falter.

Conclusion: A Turnaround in Progress, But Risks Linger

Toast’s Q1 results are a mixed bag. On one hand, the company is finally profitable, its SaaS model is firing on all cylinders, and its enterprise strategy is bearing fruit. ARR growth of 31% and a 24.4% revenue increase demonstrate that the business is expanding its core value proposition.

On the other hand, rising CAC, margin pressures, and soft GPV metrics suggest Toast is grappling with the growing pains of scaling. The company’s stock performance and analyst ratings reflect this duality: while the EBITDA beat sparked optimism, the EPS miss and cost issues keep skepticism alive.

For investors, the question is whether Toast can sustain its growth while improving profitability. With its $20.55 billion market cap and a 21.9% revenue growth forecast for the next 12 months, the company has momentum. But without a clear path to reversing CAC inefficiencies and stabilizing GPV per location, the stock’s upside remains capped.

In the end, Toast’s story is a classic one for a tech company in transition: the early innings of profitability are here, but the real test begins now.