If there is one thing I have learned about investing over the years, it is this: nobody can predict the future. What distinguishes the best companies — and makes their shares a good investment — is their ability to act quickly and effectively when the unexpected happens.
Usually private investors lack compelling evidence that a company can adapt to such seismic change. An exception to that rule is Boston restaurant-tech purveyor Toast which on August 27 filed for an IPO. I see three reasons to buy shares in Toast:
- It’s growing fast in a large market
- It adapted with agility to the pandemic
- Its management team and culture bode well for future growth
(I have no financial interest in the securities mentioned in this post).
Toast’s Business And IPO Filing
Toast — which, according to the Boston Globe, sells “payment-processing tablets and handheld devices and cloud-based software for restaurants to manage orders, payroll, and marketing” — was founded in 2011.
Toast aims to make life easier for a restaurant’s stakeholders. As co-founders Aman Narang, Steve Fredette, and Jonathan Grimm wrote in its S-1 filing, “Running a restaurant is tough. We started Toast to make restaurant work a little easier.”
How so? Toast says its software is “easy for restaurant workers to use and lets diners order online, in-person or over their phones. Restaurants can also use the guest data it captures to craft loyalty and marketing programs,” noted Bloomberg.
Toast has not reported how much capital it wants to raise. Its prospectus includes a $100 million “placeholder amount” which is likely to change. This February, the Wall Street Journal estimated that it would seek a $20 billion IPO valuation. Toast declined to comment when I wrote about Toast’s possible IPO in February 2021.
It’s Growing Fast in a Huge Market
Toast is taking share in a large markets. Grand View Research forecasts that the restaurant point of sale (POS) terminal market will grow from $15.5 billion in 2020 at a 6.4% compound annual rate over the next seven years. By 2028, Grand View estimates, the restaurant POS software market will increase from $9.3 billion in 2020 at 9.5% average annual rate.
Since Toast’s revenue is growing faster than these markets, logic suggests that it is taking market share. How much faster? According to its prospectus, for the first half of 2021, revenue rose 105% to $704 million.
Toast’s financial condition has improved in 2021. Although its net loss nearly doubled to $235 million in the first half of 2021, its free cash flow during that period was nearly $39 million — a big improvement from the negative $129 million in free cash flow it consumed in the first half of 2020.
Toast has many restaurant customers. As of June 30, Toast was used in about 48,000 restaurants and processed $38 billion in gross payments — averaging 5.5 million guest orders per day — in the year ending this June.
Its customer count has grown very rapidly over the last three and a half years — at a compound annual rate of about 79% from 6,000 restaurants in 2017 to 47,912 this June, according to the S-1.
Why is it growing so fast? Toast offers restaurants a better value proposition than do rival products. As I wrote in February 2019, Snappy Pattys, a Medford, Mass. burger restaurant, previously used Clover — which was later acquired by First Data
— as its point of sale system.
The restaurant replaced Clover because “We couldn’t get in touch with them. Sometimes, we’d have to wait several days before they got back to us,” said owner Nick Dowling.
Dowling replaced Clover with Toast. Toast enabled the restaurant to track what was selling well and what was not. Toast also saved money for Snappy Pattys — Clover cost $30,000 a year, according to Dowling. “[Toast] exceeds at all areas at a fraction of the cost of other POS systems,” he said.
With a mere 6% of the 860,000 restaurants in the U.S. on its platform, Toast sees significant growth potential.
It Adapted With Agility to the Pandemic
Toast’s leadership team adapted effectively to the pandemic. When the pandemic shuttered restaurants, Toast cut costs and retooled its services to help restaurants adapt by letting customer order online and either pickup at the restaurant or take delivery to their homes.
Sadly for Toast, the pandemic struck shortly after it raised a big round of capital. In February 2020, the company raised $400 million at a valuation of $4.9 billion.
Two months later, the pandemic shuttered many restaurants — sending Toast’s revenue down over 80%. In April, Toast cut 50% of its staff, reduced executive pay, froze hiring, halted bonuses and pulled back job offers.
By the middle of 2020, business had bounced back. What was behind Toast’s recovery? Its software helped restaurants shift rapidly from in-house dining — which the pandemic radically curtailed — to picking up meals to-go at the restaurant and selling gift cards.
By November 2020, Toast’s business had came roaring back — boosting its valuation to $8 billion.
When I asked Toast this February about the Journal report of its $20 billion IPO, the company told me, “Toast does not comment on any speculated financial transactions. We remain laser-focused on supporting the restaurant industry as it moves toward recovery from the COVID-19 health crisis and furthering our mission to empower the restaurant community to delight guests, do what they love, and thrive.”
Its Management Team and Culture Will Drive Continued Growth
How was Toast able to make the right moves? Why is it well-positioned to adapt to whatever unexpected threats and opportunities might arise in the future? In a nutshell, the answers are Toast’s management and culture.
Toast was founded in 2011 by Aman Narang, Jon Grimm and Steve Fredette who had worked together at a Cambridge, Mass.-based software company, Endeca — which Oracle acquired for $1.1 billion in October 2011. Toast raised its initial $500,000 seed round from the founder of Endeca
Toast did not achieve success with its first product but did enjoy a surge in demand after building a new one. In a 2019 interview, Fredette (who I first interviewed for an October 2017 column in the Worcester Telegram & Gazette), Narang and Grimm, told me that Toast’s initial product — a restaurant paycheck app — struggled.
However, their pivot to a POS app was so popular that Toast could not keep up with the demand. They uncovered specific values that drove their early growth. As Narang said, “In the early days, our success was due to being close to the customers and caring about making our customers successful.”
Grimm, who was raised in a small Kansas farm town, said “We had the confidence to ignore people telling us that we’d fail because we were in a crowded market.” Ironically, that sense of confidence came from what Grimm called “a culture of no ego — doing right by the customer — rather than flashy, self-promotion.”
Fredette — who tried to compete with Facebook when Mark Zuckerberg was a Harvard student and turned down an offer to be one of its first employees — emphasized the importance of “learning what made our initial strategy work and leading by example rather than articulating values.”
Rather than define the culture when the company started, the cofounders tried to understand what values contributed to its success.
They identified employees who “carried the culture” and asked them what values drove Toast. As Narang said, “When we reached 80 to 100 employees we identified 10 to 30 of our employees who were best aligned with our core values. We focus-grouped the company’s six core values by asking ‘What does it mean to be successful here?'”
They also used the culture to keep out potential employees who did not fit its culture. As Fredette told me, he was interviewing a candidate for an engineering position and asked him, “‘What do you think of our team?’ The candidate replied, ‘Just OK.'” Fredette thought to himself, “He did well on the technical questions but why would you say that? If we hire someone toxic, it will spread.”
Toast saw itself applying that culture to a huge, untapped market. As CEO Chris Comparato — who joined Toast as CEO in February 2015 — told me in an April 2019 interview, “I have a customer success obsession. Our platform is giving restaurants a boost in same store sales and operating efficiency. It provides data analysis and empowers employees to delight guests.”
If Toast can maintain this culture as a public company, I expect it to continue growing rapidly.
Is Toast Worth $20 Billion or $67 Billion?
How much is Toast worth? We will have to wait until it goes public to find out.
While the $20 billion valuation seems popular in the financial media, I came up with what is probably a wildly optimistic value by looking at a comparable publicly-traded company.
Olo, a Manhattan-based food-ordering software provider, went public in March 2021 and its stock has risen 29% since to a market capitalization of $6.9 billion.
For the first six months of 2021, Olo’s revenues totaled $72 million (up 80%) — valuing Olo at 96 times its first half sales. Applying that high multiple might be inappropriately low since Toast is growing much faster — 105% — than Olo.
However, to be conservative, I multiplied Olo’s market cap/first half sales ratio by Toast’s $706 million in first half sales — yielding an estimate of $67.2 billion for Toast’s value.
If my estimate is anywhere in the ball park, February’s $20 billion IPO valuation for Toast would leave lots of money on the table.
Optimove raises $75M growth investment to manage customer-led journeys at scale – TechCrunch
When businesses can connect more personally with their customers, those customers in turn are more loyal. However, as consumer behavior changes, especially as it did over the past 18 months, it is more difficult to establish that connection amid all of the messages put in front of them.
Optimove, specializing in customer relationship management marketing, wants to help brands “delight” their customers and keep them coming back. The company, with bases in Tel Aviv, New York and London, raised a $75 million growth investment led by Summit Partners.
The SaaS company was founded in 2012 by CEO Pini Yakuel to connect customers with brands and to apply artificial intelligence to customer data to orchestrate the right message to the right customer at the right time, and do it at scale, Yakuel told TechCrunch.
“It’s easier when you are creating three or five customer journeys a month, but when you really scale and want to do thousands, there is not an easy way to do that,” he added. “We do that with AI orchestrators that govern all of the messages. Now you can define the message and the marketer will have all of the data and be able to get feedback and analysis of what the customer segment looks like.”
As the global multichannel marketing market is expected to reach $28 billion by 2027, Yakuel said it will be an advantage to know who a brand’s customers are and how to target them. Optimove’s analysis of the data provides insights on how to achieve and attribute measurable improvement in such areas as churn, conversion, reactivation and lifetime value for each customer and campaign.
Prior to this investment, Optimove was bootstrapped for the first four years until raising $20 million. Yakuel said the company hasn’t used the money yet — it has been profitable so far. He considers the round to be Summit Partners, which is buying out the company’s earlier investors, as making a bigger commitment to the company.
“It is a transition and phase into a new era,” he added. “It felt like the right time for us given the specific climate of fundraising. We also want to do some M&A and build out our platform, but that all has to be done seamlessly. To use us today, a business may also have to use three or four other solutions and stitch them together. If we can own some of those capabilities, we can be better partners.”
In addition to M&A, the company plans to double its staff of 300 over the next two years and invest in technology, R&D and engineering to serve its 500 brand customers, including BetMGM, Papa John’s and Staples.
In the past year, the company saw an increase of 40% annual recurring revenue, and it sends more than 23 billion optimized messages via email, mobile, ad platforms and other channels, to over 3 billion customers annually. Next up for the company, Yakuel expects the next milestone to be an initial public offering in three years.
In addition to the funding, the company said Summit Partners’ head of Europe, Han Sikkens, and managing director, Steffan Peyer, are joining its board of directors.
Peyer said Summit invests in companies that are focused on marketing technology and are out to understand the customer journey, especially as that has become more important during the global pandemic. During this time, the cost of acquiring new customers has risen and this is where Optimove is most beneficial — enabling engagement with existing user bases, he added.
“What they have done is build a sophisticated customer data platform, with a sophisticated analytics orchestration engine, predicated on understanding and review the behavior of the customer and targeting micro segment campaigns to ensure the engagement level is good, and if there are other products that could be sold to a particular customer,” Peyer said. “Their modeling has a strong backend infrastructure to process data at scale and leverage that information in real time.”
Here’s How Old School Investing May Just Protect Your Retirement – Forbes
It seems fewer people want to talk about managing investment portfolios today. In fact, for many, “investing” means determining which mutual funds you should pick.
But mutual funds aren’t monolithic entities. They consist of investment portfolios of individual securities. It therefore makes sense for you to understand how these portfolios work.
Perhaps the most effective way to achieve this is by going back to the basics. You might remember the phrase “old time hockey,” (you know, like Eddie Shore). Well, there’s such a thing as “old school investing,” (like Ben Graham).
Ben Graham, called the Father of Value Investing, co-authored the seminal book Securities Analysis with David Dodd in 1934. This book is considered a “must read” if you dream of becoming a stock analyst and manage portfolios of all kinds (including mutual fund portfolios).
Of course, you’d probably find Graham’s The Intelligent Investor more approachable. This book was first published in 1949, but revised several times, the last being published in 1973, three years before Graham’s death. It’s here in Chapter 4 that Graham writes “We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with the consequent inverse range of between 75% and 25% in bonds.”
This simple asset allocation rule echoes the standard understanding of the benefits of diversification.
“Putting money in stocks, bonds, and other asset classes is called diversification,” says Stuart Robertson, CEO of ShareBuilder 401k in Seattle. “Diversifying across asset classes can offer assistance as one asset class may perform well while another suffers in differing economic environments. Stocks have had years when returns increased greater than 20%, and periods where they have declined 20% or more. Those are big swings. Think about 2020. The stock market tumbled over 33% by March, only to quickly rebound and have strong returns by December. That was a wild roller coaster. In March of 2020, you might have felt like you lost a lot of money, and then a year later, you might be pretty happy. Just know that stocks are likely to go up and down at a much greater percentage than bonds and cash.”
That Graham suggests you have a significant portion of your portfolio in bonds or similar instruments therefore means one thing and one thing only.
“‘Stable value investments’ provide just that: Stability,” says Ian Grove of RG Advisors Inc in Napa, California. “Keeping a balanced portfolio would most of the time include debt or fixed income securities to shield the investor’s portfolio from unexpected market events.”
This dampening of volatility is especially important as you approach and extend into your retirement years. You don’t have the luxury of time to make up from a sudden downturn.
“For those with short time horizons, such as individuals reaching retirement age, having some more conservative options, such as stable funds, can offer protection from volatility while still providing some benefits over money market funds,” says Syed Nishat, Partner at Wall Street Alliance Group in New York City. “These funds can serve as a stabilizer within a portfolio, hedging against market volatility with minimal risk. While the yield isn’t as great as a higher risk fund, they do have higher rates of interest with little price fluctuation.”
There’s a bit more of a nuance to this than simply minimizing downside risk.
Washington, D.C based Steve Pilloff, professor of finance at George Mason University’s School of Business, explains, “Fixed income and stable value investments are an important component for a diversified portfolio. People often believe that the benefit of diversification is that it reduces risk, but this is only part of the picture. The true benefit of diversification is that it enables investors to maximize the risk-return trade-off. A portfolio with only stocks and a certain level of risk will have a lower expected return than a diversified portfolio with that same amount of risk.”
Still, there’s another advantage to splitting your portfolio into asset classes with complimentary risk profiles.
“Graham was trying to make the point that an investor’s biggest problem, or enemy, was psychology and themselves,” says Paul Swanson, Vice President, Retirement at Cuna Mutual Group in Madison, Wisconsin. “By keeping a portion out of the stock market, they may protect themselves, and their portfolios, from themselves.”
In this way, Graham anticipated what would eventually become known as “behavioral finance,” which is sort of a cross between finance and psychology. He was attempting to help non-professional (and maybe even professional) investors conquer their inner demons by forcing portfolios to keep a strict minimum of 25% in bonds. (He actually made it simpler by saying it’s easier to just have 50% in stocks and 50% in bonds.)
“Fixed income and stable value investments have typically played a key part in a diversified portfolio,” says Gaurav Sharma, CEO of Capitalize in New York City. “There’s a common sense reason for this. While the returns from these assets aren’t as high as equities over time, they are less ‘volatile’ and less likely to decline in bear markets. Investing legends like Graham appreciated that investing successfully is more about human psychology than anything else. Having a part of our portfolio that’s lower volatility helps cushion our losses and keep us psychologically fortified when markets fall, as they inevitably do from time to time. That means we’re more likely to stay the course than capitulate and sell our riskier investments when they decline. This is often the exact wrong time to sell.”
If you’ve heard of the concept of rebalancing, then you already know the real advantage of Graham’s advice. Brian Haney, Founder & Vice President of The Haney Company in Silver Spring, Maryland, says Graham’s flexible allocation guideline allows you “to have capital available to be opportunistic should the market present such an opportunity.”
In The Intelligent Investor, Graham explains it thusly: “According to tradition and sound reasoning for increasing the percentage of common stocks would be the appearance of the ‘bargain price’ levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgment of the investor the market level has become dangerously high.”
Now, it’s important to understand the following: Graham originally wrote this book nearly 75 years ago. He understood things change. Even his revisions update his advice. The basic sense of what he said was well grounded, but he was careful to suggest you need to pay attention and not follow anyone’s advice blindly. (You might wonder what his reaction might be to “robo-advice.”)
Old school investing continues to build on a strong foundation.
“Graham was likely referencing a hedge against equities in the event of a market downturn,” says Todd Scorzafava, Principal/Partner and Managing Director of Wealth Management at Eagle Rock Wealth Management in East Hanover, New Jersey, “but again, depending on goals, timeframes, comfortability and ongoing plans this will vary from person to person. The risk in a portfolio needs to be right in order for the investor to stay the course.”
It is therefore important that you take any “old” advice as a starting point, not as a definitive axiom.
“While the logic underlying diversification remains sound, there’s one thing to keep in mind about fixed income investments today versus decades past: interest rates across the board have compressed significantly, so the returns offered by fixed income have come down in nominal terms,” says Sharma. “We may be on the verge of a collective rethink on what level of returns we can count on from fixed income, but the broader point about not being exclusively in stocks or risky assets is still a very important one to keep in mind.”
Centurian jail for sale in Owen Sound offers spooky real estate investment – CTV News Barrie
BARRIE, ONT. –
A historic jail is for sale in Owen Sound.
The city has been trying to sell the 165-year-old jail since 2011.
This summer, it was listed again for $229,000, but a local realtor says while there’s a lot of potential hidden within the Centurian walls, it could be costly.
“The amount of money that could be spent in this building could be upwards of five to ten million dollars,” says Dave Park, realtor at Chestnut Park.
Money that would need to be spent to be approved by stakeholders and city staff. The city says they will be accepting offers until October 4 and making a formal decision about the building’s future on October 22.
For those wondering about paranormal activity, Park says there hasn’t been any ghost sightings.
“But certainly, just walking through the facility it allows you to think there could be ghosts here,” Park says.
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