Rising Star: Toast Inc. (TOST)

The Consumer Is Under Pressure. Toast Keeps Growing.

Inflation just hit 4.2% in May 2026 – its highest level since April 2023 – driven largely by an energy shock tied to the conflict in the Middle East. Gasoline prices surged more than 40% year-over-year. Food costs are up 3.1%. And according to the Conference Board, two-thirds of consumers say they are actively cutting back on spending due to rising prices.

That’s a tough backdrop for most consumer-facing companies. But it may be creating a quiet tailwind for one.

What Toast Actually Does

Toast, Inc. (NYSE: TOST) is a cloud-based, all-in-one digital technology platform built specifically for restaurants. Point-of-sale software, payments processing, payroll, scheduling, analytics – it handles the full operating layer for food-service businesses. Restaurants and bars remain among the top spending categories consumers hold onto even when budgets tighten. That makes Toast’s transaction volume more defensible than most.

The part worth paying attention to: Toast’s revenue is derived from software subscriptions and payment processing fees – not from restaurant sales volume directly. Even a slow night for diners still generates recurring revenue for Toast.

The Numbers Behind the Story

Full-year 2025 revenue grew 24% to $6.15 billion, up from $4.96 billion in 2024. GAAP net income jumped to $342 million from just $19 million a year prior. Adjusted EBITDA expanded to $633 million, with free cash flow of $608 million. The company added a record 30,000 net new locations across the year, ending 2025 with approximately 164,000 locations globally – up 22% year over year.

Annualized Recurring Revenue crossed $2 billion, up 26%. Gross Payment Volume hit $195.1 billion for the full year. SaaS gross margins expanded 300 basis points year over year to 80% in Q4 alone. And the SaaS Net Retention Rate held at 109% – meaning existing customers are spending more on the platform over time, not less.

On the enterprise side, Toast signed Applebee’s in Q1 2025 – its largest deal in company history – and has since added TGI Fridays, Teriyaki Madness, and Papa Murphy’s to its roster. International expansion is underway across the UK, Ireland, Canada, and Australia.

Why the Macro Moment Matters Here

Small restaurant operators are dealing with the same inflation squeeze as their customers. Labor costs remain a central pressure point – 47% of restaurant operators surveyed by Toast in 2025 said increasing staff efficiency was their top priority. That urgency is driving faster adoption of platforms that help cut operational friction. Toast’s scheduling tools, payroll integration, and AI-powered features like Toast IQ are increasingly what operators are reaching for when margins tighten.

What’s interesting is that the harder the operating environment gets for restaurants, the stronger the argument becomes for a platform that helps them do more with less. Inflation may be squeezing the customer. It could also be accelerating Toast’s adoption curve.

The Risks

• Hardware margin headwinds persist – tariff costs are pressuring hardware gross profit, which ran at negative 12% of recurring gross profit streams in 2025.
• Heavy R&D investment ($374 million in fiscal 2025) may delay near-term margin expansion.
• A prolonged consumer spending pullback could slow restaurant growth and, with it, Toast’s payment volume runway.
• AI commoditization of software remains a longer-term competitive risk worth monitoring.

Management’s 2026 outlook calls for continued double-digit growth in subscription and financial technology gross profit and higher Adjusted EBITDA. Whether the macro cooperates or not, Toast has built a business that earns more from its existing customers each year – and keeps adding new ones at a pace that is hard to dismiss. That combination, in this environment, is worth a closer look.

– Rising Star Stocks Editorial Team