Toast, Inc. (TOST) stock intrinsic value fair value estimate & owner earnings analysis

Toast sells restaurants a combined point-of-sale system, software subscriptions and card payment processing. Most of its revenue comes from processing payments (financial technology solutions: $5,037 million of $6,153 million in 2025), with subscriptions ($936 million) and hardware ($180 million) making up the rest. Revenue grew 24% in 2025. The company had about 164,000 locations at the end of 2025, up 22% from the year before, and estimates it holds roughly 20% of U.S. restaurant locations. What we measure. We value the business on owner earnings: cash from operations, minus stock-based pay (a real cost paid in shares), minus the cash swings from working capital, minus the part of equipment and software spending needed just to stand still. On that basis Toast lost money per share in 2021 to 2023, then turned positive: about $0.14 per share in 2024 (roughly $83 million) and about $0.70 per share in 2025 (roughly $423 million). We treat the business as transformed from 2024 and use the 2025 level as the starting point: it is the most recent full year, stock-based pay fell from $277 million in 2023 to $242 million in 2025 while revenue rose 59% (from $3,865 million to $6,153 million), and operating income reached $292 million. First-half 2026 net income of $280 million (versus $136 million a year earlier) is consistent with that level, though one year is a thin base. About $51 million of 2025 cash flow was interest earned on Toast's cash and investments. We did not count deferred contract acquisition costs (a recurring cash outlay of $147 million in 2025, partly offset by $99 million of non-cash amortization) as a working-capital swing, so they remain a deduction. Growth we credited. Toast has added a steady 27,000 to 30,000 locations every year (79,000 at the end of 2022, 106,000 in 2023, 134,000 in 2024, 164,000 in 2025), even though the percentage growth has slowed from 34% to 26% to 22%. We credit that steady cadence, tapering as the share of U.S. restaurants already served rises, and we hold earnings per location flat at the 2025 level of roughly $2,800 a year. Left out: any improvement in profit margin per location, price increases, new products, international expansion (the company describes it only as an opportunity), and any share gain beyond the tapering additions. Year 1 of the base case assumes owner earnings grow about 20% (average locations of about 178,000 versus about 149,000); the trailing actual rate, from $0.14 to $0.70 per share, was far higher off a very small base, so we are not assuming a re-acceleration. Base case, about $14.60 per share. Net additions of 28,000, 24,000, 20,000, 16,000, 12,000, 8,000 and 4,000 locations over the next seven years, then none, for about 276,000 locations, with earnings per location flat. After year 10, the installed base keeps producing but we assume its earnings decline 5% a year, because nothing in the filings shows how long restaurants stay with a platform beyond current location counts. Bear case, about $6.40 per share. This is a weaker but not catastrophic outcome. Additions taper faster (20,000, 14,000, 8,000, 4,000, then none), and earnings per location settle at about $1,700, the midpoint of 2024 and 2025 rather than the strong 2025 level, in case part of the 2025 jump proves temporary. Toast Capital, which markets working-capital loans made by a partner bank, could face challenges over whether the bank or Toast is the true lender; the annual report lays out that risk and it could bring penalties or impair the loans. After year 10, earnings decline 8% a year. Bull case, about $20.30 per share. Toast keeps adding its recent pace of about 30,000 locations for two years and tapers only gradually afterward (30,000, 30,000, 28,000, 26,000, 24,000, 22,000, 20,000, 16,000, 12,000, 8,000), reaching about 380,000 locations, with earnings per location held at the 2025 level. Earnings then decline 3% a year after year 10. This needs share of the U.S. restaurant market to more than double from about 20%. What could make us wrong. Payment processing revenue and profit depend on card mix and consumer spending, and the company notes that restaurant closures reduce locations and payment volume. First-half 2026 cash from operations was $276 million versus $302 million a year earlier, with inventories absorbing $103 million of cash; we have not established whether that build is temporary. The company is controlled by holders of Class B shares, who carry ten votes per share and held about 55% of votes at the end of 2025. Stock-based pay is treated as a cost here; if it were ignored, earnings would look about 57% higher.