Podcast Summary
Toast's expansion beyond restaurants: Toast added 8,000 new locations, reported $1.5B annualized recurring revenue, and positive gap operating income for the first time, indicating progress in expanding beyond the restaurant industry.
Toast, a payment software company, is still in its early stages of expansion beyond its core business in the restaurant industry. With only 120,000 locations currently using their service out of an estimated 1.2 million potential locations in the US, the company has a long way to go. During their latest quarter, they added 8,000 new locations and reported an annualized recurring revenue of $1.5 billion, a 30% increase from the previous year. The company's CEO, Stewart Parvin, described their current position as being in the first or second inning of building out their platform for new verticals. Despite this, the company reported positive gap operating income for the first time, totaling $5 million. Overall, Toast's growth potential is significant, and their strong quarterly performance indicates that they are making progress towards tapping into this potential.
Toast's profitability metrics vs market valuation: Toast aims for a 30-35% margin on subscription and FinTech gross profits, but the market disregards this metric and instead focuses on other factors, creating an opportunity for potential investors.
Toast, a restaurant technology company, is focused on increasing its subscription and FinTech gross profits, aiming for a margin of 30-35%. This metric reflects the belief that the more restaurants use their products, the more profit both parties will make. However, despite Toast's consistent progress towards this goal, the market has shown skepticism, disregarding this profitability metric and instead focusing on other factors. This disconnect between Toast's internal financial targets and the market's valuation presents an opportunity for potential investors. The market's lack of faith in Toast's ability to scale up its free cash flow margins remains a concern.
Shopify attach rate: Shopify's attach rate, which measures the percentage of gross merchandise volume that results in revenue for Shopify, has been decreasing and is currently at 2.98%. To reach valuation levels that could be considered cheap, Shopify needs to increase this rate to around 3.5% or 4%.
Shopify's growth is not only coming from more sales but also from its increased involvement in more parts of the transaction, specifically payments. However, to justify its current valuation, Shopify needs to increase its attach rate, which measures the percentage of gross merchandise volume that results in revenue for Shopify. The company's attach rate has been decreasing and is currently at 2.98%, down from 3.09% a year ago. To reach valuation levels that could be considered cheap, Shopify needs to increase this rate to around 3.5% or 4%. While there are risks associated with Shopify's increased involvement in payments, potentially putting it at conflict with payments processors, the company is also taking steps to expand its reach and encourage more commerce on its platform. Overall, Shopify's growth is a result of both more sales and more involvement in transactions, but to continue justifying its valuation, it needs to increase its attach rate.
Market volatility strategy: During market volatility, focus on your strategy, double down on businesses you believe in, maintain an investment journal, and stay focused on long-term goals to navigate uncertainty.
During market volatility, focusing on your investment strategy and maintaining a clear mindset can help you navigate uncertainty. One practical step is to double down on businesses you believe in, as market turbulence can present buying opportunities. Another approach is to maintain an investment journal, which can help keep emotions in check and serve as a record of your investment thesis and reasoning. Ultimately, it's important to remember that market volatility is a normal part of investing and staying focused on long-term goals and the fundamentals of the businesses you're invested in can help mitigate the emotional impact of short-term market swings.
Business/Investment Thesis: Focus on core reasons for a company's success, usually 2-3 advantages in the marketplace. A clear and simple thesis is key to understanding the investment.
Writing a business or investment thesis should be simple and easy to understand. This was emphasized by the speaker, who shared how he used to believe that a thesis was about presenting a lot of facts and figures to prove his intelligence and expertise. However, he learned that a thesis should focus on the core reasons why a company will succeed, which usually translates to two or three advantages in the marketplace. The speaker also shared an example of his investment thesis for LAM Research, a company that manufactures machines used to build integrated circuits. He likes this company because it's cyclical but has a tailwind in the form of the shift towards generative AI, which is increasing demand for NAND flash storage and high bandwidth memory, both of which LAM Research specializes in. The stock is trading at attractive forward multiples but may be affected by macroeconomic deceleration and potential slacking off of generative AI demand. The geopolitical situation between the US and China may also impact the company, as it generates about 39% of its revenue from the greater China region. Overall, the speaker's thesis for LAM Research is to buy a few shares for dollar cost averaging.
General Artificial Intelligence stocks: Speaker Ricky Mulvey expresses growing interest in Gen AI stocks, specifically a company recommended in The Motley Fool's Stock Advisor, due to its central role in the industry and potential price drop
The speaker, Ricky Mulvey, is expressing his growing interest in investing in stocks related to General Artificial Intelligence (Gen AI), specifically a company he's been watching for some time. He mentions that the company is recommended in The Motley Fool's Stock Advisor and that he's studied it extensively. Although there is competition in the industry, he believes that the company is a central player due to trends within Gen AI. He also suggests that the recent price drop may be influencing his decision. However, he emphasizes that people should not buy or sell stocks based solely on the information shared on the program.