Shares of Toast, the restaurant-focused software and payments platform, experienced significant downward pressure on Thursday, February 12, 2026, following the release of its fourth-quarter financial results and a forward-looking outlook for the full year 2026. The stock declined 6.7% during the regular trading session to close at $26.14 and extended its losses in after-hours activity, falling an additional 5.5% to approximately $24.70. This sell-off was primarily driven by investor concerns over new cost pressures highlighted in the company's guidance.
Financial Performance and Shareholder Returns
For the fourth quarter, Toast reported robust top-line growth, with revenue reaching $1.63 billion. The company achieved a net income of $101 million, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) coming in at $163 million. A key metric for the software-as-a-service business, annualized recurring run-rate (ARR), grew by 26% year-over-year, surpassing the $2.0 billion mark. In a move aimed at returning capital to shareholders, Toast's board of directors authorized an incremental $500 million for its stock repurchase program. The company indicated it would execute these buybacks through open market transactions, potentially utilizing trading plans.
Guidance Highlights Cost Headwinds
Management's commentary surrounding its 2026 forecast became the focal point for the market's negative reaction. Chief Financial Officer Elena Gomez detailed that the company anticipates a margin headwind of approximately 150 basis points, attributing it primarily to increased costs for memory chips used in its hardware offerings. Furthermore, the company cited rising tariff expenses as an additional factor pressuring its hardware segment margins. This hardware is often bundled with Toast's core software and payment processing solutions for restaurant clients.
For the immediate quarter ending March 31, 2026, Toast provided guidance for non-GAAP gross profit from subscription services and fintech solutions in the range of $505 million to $515 million. Adjusted EBITDA for Q1 2026 is projected to be between $160 million and $170 million. Looking at the full 2026 year, the company expects non-GAAP gross profit to land between $2.27 billion and $2.30 billion, with adjusted EBITDA forecasted in the $775 million to $795 million range.
Operational Growth and Expansion
Despite the cost concerns, Toast demonstrated continued strong operational growth. The company ended 2025 with approximately 164,000 restaurant locations live on its platform, representing a 22% increase from the prior year. It added a net 8,000 new locations during the fourth quarter alone. This location growth is critical as it drives the company's gross payment volume (GPV) and generates stable, recurring software revenue.
Toast is also actively expanding beyond its traditional restaurant base. The company highlighted a significant partnership with Papa Murphy's that will see its point-of-sale technology deployed in over 1,000 locations nationwide. It is developing new retail-oriented features and enhancing its Toast IQ assistant to cater to this broader market. Just days before the earnings report, Toast announced a collaboration with Instacart designed to connect in-store inventory directly to Instacart's platform, aiming to provide restaurants with "just-in-time" supply chain capabilities.
Market Context and Competitive Landscape
The broader market environment on Thursday was risk-averse, with the S&P 500 ETF declining roughly 1.5%. However, Toast's decline was notably steeper, underscoring the stock-specific nature of the sell-off. Analysts point out that the restaurant point-of-sale and payments sector is becoming increasingly competitive, with rivals and payment processors aggressively competing on price and bundled offerings. The dual pressures of cost inflation and tariffs are emerging as Toast's primary challenge, potentially squeezing hardware margins at a time when competitive intensity is rising.
Looking ahead, investors will be closely monitoring management's execution on its buyback program and any signs of relief from hardware cost pressures later in 2026. The company's ability to meet its Q1 2026 guidance and continue its rapid location growth, especially if consumer spending softens and restaurants become more cautious about technology investments, will be key determinants of the stock's performance. The market is now seeking clearer signals on the timing of share repurchases and a potential pathway for margin recovery.