Toast, a restaurant software and payments company, has rebounded sharply this year after a weak start, posting Q2 revenue growth of 23% and ARR growth of 25%.
Its AI-powered marketing tool is reaching $10 million in annual recurring revenue faster than any prior Toast solution, and the company plans to expand agentic AI across payroll, scheduling, and other back-office functions that can materially improve restaurant margins.
With consistent 20%-plus ARR growth and a forward valuation of 20 times 2027 analyst earnings, analysts see room for continued stock appreciation.
What happened
Toast reported Q2 revenue of $1.91 billion (up 23%), with subscription revenue jumping 28% to $290 million and annual recurring revenue (ARR) surging 25% to $2.4 billion. The company added 9,500 new locations in the quarter—a record—and now serves 180,000 locations total. Toast raised its full-year 2026 guidance for subscription and fintech gross profit to $2.325 billion–$2.355 billion (23%–25% growth).
Why it matters
Toast's AI-powered marketing tool, Toast IQ Grow, is on track to become the company's fastest-ever solution to reach $10 million in annual recurring revenue, signaling strong traction in a market of small and medium-sized restaurant operators who lack in-house AI expertise. The company plans to expand agentic AI into payroll, scheduling, tax, and bookkeeping—tools that can meaningfully improve margins for restaurants operating on thin profit margins and boost average revenue per user over time.
What to watch
Toast stock trades at below 8 times its 2026 ARR guidance and 20 times 2027 analyst earnings estimates. The company projects that its newer growth areas (international, chains, and grocery stores), where aggregate ARR is expected to double this year to $200 million, will continue fueling long-term upside.
Toast posted strong second-quarter results that defied the pessimism that had gripped the stock at the year's start. Revenue reached $1.91 billion, up 23% year over year, while subscription revenue jumped 28% to $290 million and financial technology revenue grew 23%. The company processed $60.7 billion in gross payment volume (GPV), up 22%, maintaining a 59-basis-point fintech take rate and a 50-basis-point payments take rate. Most tellingly, annual recurring revenue (ARR)—which combines annualized subscription revenue and gross profit from payment processing—surged 25% to $2.4 billion, the metric management considers most important given the wide gross-margin gap between subscriptions and payments.
Toast added 9,500 new restaurant locations in Q2, a quarterly record, bringing its total to 180,000 locations (up 22% year over year). Earnings per share doubled to $0.26 from $0.13 a year earlier, though that figure included a $10 million tariff refund; adjusted EPS would have been around $0.24. Excluding the refund, adjusted EBITDA jumped 31% to $211 million.
The company's AI strategy centers on Toast IQ Grow, an AI-powered marketing tool that is on track to become Toast's fastest-ever solution to reach $10 million in annual recurring revenue, with restaurants reporting strong outcomes. Management is expanding this agentic AI platform into payroll, scheduling, tax, and bookkeeping—modules designed to materially improve margins for restaurant operators, which can also drive long-term growth in average revenue per user (ARPU). Toast also highlighted progress in newer geographic and vertical markets: international operations, chains, and grocery stores, where aggregate ARR is projected to double this year to $200 million.
Looking ahead, Toast raised its full-year 2026 guidance for subscription services and fintech gross profit to $2.325 billion–$2.355 billion (23%–25% growth), up from a prior outlook of $2.29 billion–$2.32 billion. The company also raised adjusted EBITDA guidance to $805 million–$825 million from $790 million–$810 million. For Q3, Toast projects subscription and fintech gross profit of $615 million–$625 million (22%–24% growth) and adjusted EBITDA of $210 million–$220 million. At current valuations—below 8 times 2026 ARR guidance and 20 times 2027 analyst earnings estimates—the stock is viewed as offering attractive entry point for investors given Toast's consistent 20%-plus ARR growth and runway into new markets and AI-driven functionality.
Toast entered 2025 under pressure—its shares sank more than 35% at the start of the year, caught in a broader SaaS sell-off and a sluggish restaurant industry. However, the company's fundamentals remained resilient, and by spring the stock had recovered to near breakeven for the year. The second-quarter results underscore why the pessimism was misplaced: revenue climbed 23% to $1.91 billion, subscription revenue jumped 28%, and ARR surged 25% to $2.4 billion. The company also set a new record by adding 9,500 locations in a single quarter, bringing its installed base to 180,000—up 22% year over year.
Toast's AI narrative differs meaningfully from that of broader software peers. Rather than competing with frontier AI model companies, Toast operates in a highly fragmented market of millions of small and medium-sized restaurant operators who lack technical sophistication. This moat allows Toast to embed AI-powered tools tailored to restaurant economics—dynamic menu and margin optimization, predictive labor scheduling—without fear of displacement by larger AI vendors. Toast IQ Grow, the company's AI marketing tool, is already tracking to become the fastest solution ever to reach $10 million in ARR, and management plans to extend agentic AI into payroll, scheduling, tax, and bookkeeping, each of which directly addresses pain points for operators surviving on narrow margins.
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