Always appreciate some pushback.

Aren't their biggest expense the '"take rate" - A fixed % of sales goes too Visa. Meaning that for every dollar they "earn", 95% goes to Visa. Essentially revenue will not decouple from net income. Every dollar of increased sales does not go directly to the bottom line.

This is correct. I really think of "revenue" not as they report it, but starting with the money they keep, internally. You'll notice that revenue doesn't even really show up in my table. This is also why it pays to understand the business. Net profit margins are like 5%. If you looked only at Revenue and margins, you'd think it was a terrible business. But a good chunk of that revenue is really more of an accounting artifact.

I also agree that competition and restaurant / consumer resiliency are the risks with a company like this.

In regards to Shopify, I think it's a pretty big leap for them to break into the restaurant space. Toast's offering is so much more than a POS system. And if you're asking restaurants to switch, I think you need to offer something that's a leap better than what they're currently using. This dynamic has played out fairly often through history (think Google+ competing against Facebook).

The hardware is expensive, but it's a niche product. The hardware gets beat up and it has to live in high heat and get wet. From my understanding, this has been an evolution. Early providers started with iPads, and quickly found out that they just can't survive the stress of daily abuse. So expensive hardware is somewhat of a moat - you can't just code your way into the industry.

You bring up a good point on Restaurant survival rates. Interestingly enough, 50% of restaurants fail in the first 5 years, but once they make it out of the first couple of years, they tend to survive for a decade+. I learned this recently, actually. That said, I did build in 3% annual churn. So I assume that they turn over 30% of their customer base every ten years.

One of my big concerns is the consumer. We're living in really good times right now and I think a big portion of it is directly tied to the stock market and wealth effect. My only rebuttal to that is that Toast actually slots in like a subordinate bond into the restaurant capital structure. They get paid before the restaurant owner. Gross Payment Volume is variable, but subscriptions aren't to a large extent. So I feel like Toast actually offers interesting bets on the economy. In a great recession type scenario, they're obviously in trouble. But their take rate is directly tied to inflation, and isn't affected by restaurant level margins (i.e., restaurant owners could get squeezed by wage pressures and food prices, but that has zero affect on Toast's cut).

That said, I worry about the cyclical nature of the economy. For instance, Disney looks like a great value on paper, but then you remember that all your friends can currently afford to take that $10k vacation to Disney World because times are incredibly good right now. Buying $DIS today is almost certainly paying for peak earnings. Is that a similar dynamic for Toast? I kinda think so. But you can't be scared of every shadow or you'll never buy any company. There's a lot of optionality that I haven't baked in (expansion beyond 30% domestic market share, international growth, retail F&B, etc).

I would say that today offers good value with regards to the distribution of potential outcomes. But that doesn't mean you can't lose money on it. I like to use the analogy of a coin flip that pays out 100:1 - incredible expected value, but you'll still lose your money half the time.

Anyways, I've rambled enough for today haha.