Toast’s CEO sees multiple levers for growth

Notes from J.P. Morgan Technology, Media & Communications Conference: Toast’s management sees multiple levers for further growth, Marqeta’s new CEO revamps sales strategy, aims for profitability

Hi!

Over the last three days, J.P. Morgan hosted its 51st Annual Technology, Media & Communications Conference. The event gathered top executives from Block (NYSE: SQ), Fiserv (NASDAQ: FISV), Toast (NYSE: TOST), SoFI (NASDAQ: SOFI), Bill (NYSE: BILL), and many other Fintech companies. I guess, if Jamie Dimon calls, you pick up the phone. Here are my notes on a couple of talks:

• Toast’s management sees multiple levers for further growth,

• Marqeta’s new CEO revamps sales strategy, aims for profitability

Thank you for reading and see you tomorrow!

Jevgenijs

Toast’s Management Sees Multiple Levers for Further Growth

Toast (NYSE: TOST), a Fintech company serving the restaurant industry, has delivered impressive growth numbers since going public in the autumn of 2021. In the first quarter of 2023, Toast reported a 40% YoY growth in serviced restaurant locations, a 50% YoY growth in Gross Payment Volume, and a 53% YoY growth in revenue. The company expects revenue for the full year 2023 to be in the range of $3.71 to $3.80 billion and aims to break even on an Adjusted EBITDA basis. While speaking at the J.P. Morgan conference, the company’s CEO, Christopher Comparato, and CFO, Elena Gomez, highlighted multiple levers to deliver further growth.

Thus, the company’s execs pointed out acceleration in new restaurant locations in the United States, as well as opportunities coming from international expansion to English-speaking countries like Canada, Ireland, and the United Kingdom. They anticipate a record number of over 6,500 locations in the second quarter, which is a seasonally high quarter, and a further increase on a year-over-year basis in the second half of the year. Toast reported net new locations of over 5,500 in the first quarter. In its newest markets, the company is focused on achieving product-market fit and replicating successful strategies from the US. As I wrote earlier, Toast launched in Canada, Ireland, and the United Kingdom in April of this year.

Toast executives also discussed their focus on expanding the company’s Total Addressable Market by moving into new segments, such as hotels, as well as driving further growth in the Average Revenue Per User through product innovation. The company experienced significant growth in ARPU over the past couple of years due to factors like expanding the breadth of its software platform, adding an upsell team, as well as introducing new products. However, they acknowledge that such high growth is not sustainable. They expect the ARPU growth rate to moderate to 10% by the end of the year, but expressed optimism about driving long-term ARPU growth through both existing products and new product launches.

Finally, Toast's lending program, Toast Capital, aims to address the capital needs of restaurants, which are typically underserved by established financial institutions. The company leverages the data it collects through its products (payment terminals, payroll processing) to evaluate the creditworthiness of borrowers and manage risk. Toast relies on third parties for issuing loans, limiting its maximum risk to 15% of the principal balance. The company plans to scale its lending program prudently as they grow its customer base and payment volumes, and can slow down the expansion should the economic conditions deteriorate (the company halted its lending program during the early days of the COVID-19 pandemic).

✔️ Toast at J.P. Morgan Global Technology, Media & Telecom Conference
✔️ Toast Announces First Quarter 2023 Financial Results
✔️ Toast stock surges on beat-and-raise quarter
✔️ Toast expands to Canada, Ireland, and the UK

Marqeta’s New CEO Revamps Sales Strategy, Aims for Profitability

Simon Khalaf, the recently appointed CEO of issuer processor Marqeta (NASDAQ: MQ), discussed changes at the company since he took over as CEO, emphasizing the need to improve the company's go-to-market strategy, expand into the broader market of embedded finance, and achieve profitability. Khalaf’s vision for Marqeta is to become the “operating system of embedded finance”, defining embedded finance as a category of organizations that “move a lot of money, but are not financial institutions.” He named accelerated wage access, marketplaces, and the new generation of Enterprise Resource Planning systems, as key segments within embedded finance that Marqeta is currently targeting.

Marqeta's sales strategy has been revamped to achieve better results. The company has reorganized its sales organization into pods, enabling smaller teams with end-to-end control and autonomy to work closely with customers. “The pipeline grew 80% in the U.S. since the fourth quarter, and we've taken 20 days out of the sales cycle,” commented Khalaf on the early success. The focus going forward is on a land-and-expand approach, starting small with customers and expanding over time. Marqeta has seen strong bookings with two-thirds of new deals being expansions of existing customers, demonstrating the success of the land-and-expand strategy. The company aims to grow the wallet share with its customers, as well as expand geographically and across product lines.

Finally, Khalaf stressed the importance of achieving operational efficiency, as the company aims to achieve profitability. In the first quarter of 2023, Marqeta reported a Net loss of $68.8 million, compared to a Net loss of $60.6 million a year ago. Adjusted EBITDA for the quarter was negative $4.3 million. The company announced layoffs that impacted approx. 15% of its workforce and will result in $40 to $45 million in annual expense savings. Despite the challenges faced by the Fintech companies, Khalaf believes that embedded finance will thrive, taking advantage of the opportunity to embed financial services into the daily workflows of companies across many industries.

✔️ Marqeta at J.P. Morgan Global Technology, Media and Communications Conference
✔️ Marqeta Reports First Quarter 2023 Financial Results
✔️ Marqeta Names Simon Khalaf as CEO

In the first quarter of 2023, LendingClub (NYSE: LC) originated $2.29 billion in loans, of which $1.29 billion were sold through the company’s marketplace. Upstart (NASDAQ: UPST) originated $997 million. LendingClub’s Net Income was $13.7 million, while Upstart reported a loss of $129 million. Yet, Upstart’s market cap is $2.15 billion vs $0.89 billion for LendingClub. What am I missing?!

• Principal Data Scientist - Fintech Lending/Capital
  @ Toast

  Remote, United States

• Senior Software Engineer- Toast Capital
  @ Toast

  Remote, United States

• Payments Commercialization Manager

  @ Toast

  Boston, MA, United States

• Principal Software Engineer, Fintech

  @ Toast

  Dublin, Ireland

• Compensation Partner
  @ Marqeta

  Remote, United States

---

---

Cover image: Microsoft Bing Image Creator, Powered by DALL·E, prompt “a man walks into a restaurant, sees a payment terminal, smiles, pop art style”

Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.