Toast Inc - Class A

Toast has established itself as the leading POS provider for SMB restaurants in the U.S., capturing approximately 20% market share. The company is experiencing strong growth, with 2025 annual recurring revenue of about $2 billion, growing 26% year over year, and generating roughly $600 million in free cash flow. Despite recent fears around AI disruption leading to a 50% decline in share price, Toast trades at an attractive 15x 2026 free cash flow, with expectations for 30%+ free cash flow growth. The management team is founder-led, and the company is well-positioned for continued growth with multiple durable growth levers.

We initiated a position in Toast, a leader in cloud-based restaurant technology serving a large, under-penetrated market. Toast provides an integrated platform for point-of-sale, payments, operations, and guest engagement, helping restaurants improve efficiency, streamline workflows, and enhance the customer experience. Expansion into enterprise and international markets, along with a strong recurring revenue model, position Toast for profitable growth potential.

Toast combines two of the most compelling business models – vertical market software and payment processing – specifically for the restaurant industry. Their platform, which started as a cloud-based POS system, has evolved into a comprehensive operating system for restaurants. Toast's model is a unique blend of SaaS and payments, and they have a clear data advantage that allows them to introduce new products like Toast Capital. Their profitability has exceeded expectations, with non-GAAP EBITDA margins in the low 30% range, and they are well-positioned to move into the enterprise market, evidenced by wins with major clients like Marriott and Applebee's.

Jennison added to its position in Toast, a fintech leader that provides a cloud-based technology platform enabling digital operations for restaurants. The manager believes that Toast's combination of software as a service (SaaS) capabilities and payment processing offers a first-mover advantage. This positions the company well in a competitive landscape that is evolving due to advancements in AI, suggesting strong future growth potential.