On Feb. 24, the world’s largest pizza business, Domino’s Pizza (DPZ -1.70%), reported its financial results for 2024. Investors were pleasantly surprised to see its sales surpass $19 billion, which was a strong 6% year-over-year increase. And Domino’s achieved these results, in part, thanks to one key partnership.
In July 2023, it signed a deal with Uber Technologies (UBER 1.75%). This might seem insignificant. But Domino’s handles its own delivery and had resisted partnerships with third-party delivery services such as Uber Eats for years. Eventually, however, management relented and now allows orders through Uber Eats.
Therefore, 2024 represented the first full year of the partnership between Domino’s and Uber. And the year had better-than-expected growth for the pizza chain, which was partly credited to its deal with Uber.
Given this fact, I find it interesting that the little-known restaurant technology company Toast (TOST 1.76%) just made its own deal with Uber. Here’s why it could matter.
The struggle to maximize consumer demand
Toast provides payment-processing hardware to restaurants as well as a software platform to manage all of their needs. The cloud-based software as a service (SaaS) includes modules for managing in-restaurant ordering, guest loyalty, as well as back-of-house operations. But the software also meets takeout and delivery needs, which is where Uber comes in.
Uber Direct allows restaurants to use its delivery services while maintaining their current sales system. In December, Toast expanded its partnership with Uber Direct so that restaurants that use Toast’s software can also expand their reach with Uber Direct.
Uber is often called a “demand aggregator.” As of the end of 2024, it had 171 million monthly active consumers on its platform.
Those users may be hailing a ride. But for the ones looking to order food, they don’t necessarily select their food beforehand. They open the Uber app and browse for something they want to eat.
In other words, the consumer demand isn’t going directly to the restaurants. Rather, demand for restaurants is aggregated on Uber’s third-party platform.
That’s why Domino’s moved toward Uber. The chain may be more comfortable being completely independent, but it needs the consumer demand that’s over on Uber. That’s why Domino’s might consider more partnerships in 2025 with Uber’s rivals, such as DoorDash.
It might not matter too much to Toast with its primary customer base of small restaurant companies, but its partnership with Uber could help it win business with larger restaurant companies. Smaller businesses might not want the hassle of incorporating takeout and delivery. But almost all larger chains have delivery options.
Incidentally, Toast just signed its largest restaurant deal to date on Feb. 18. Ascent Hospitality Management owns hundreds of restaurant locations, including the Perkins and Huddle House brands. Those aren’t exactly household names, but it does get Toast’s technology into 500 restaurant locations in one fell swoop.
Now that Toast works better with Uber Direct, it’s possible that we’ll see more integrations with other demand aggregators in coming quarters. And this could help it grow by landing bigger fish as customers.
What does this mean for Toast investors?
It’s tempting to make Uber the focal point here. After all, I believe that these demand-aggregation platforms are increasingly proving their worth.
However, keeping the attention on Toast, the company hasn’t exactly struggled to grow without Uber. In fact, it got 28,000 new restaurant locations using its platform in 2024, which was an annual record. And it achieved this growth while spending just 9% of revenue on sales and marketing, which is quite efficient for a high-growth company.
So Toast is growing just fine. And according to management, it has already grabbed 15% U.S. market share. This is a meaningful portion of the pie but still points to strong upside potential.
But again, it’s important to remember that many large restaurant chains are included in the 85% market share that Toast doesn’t have. If the company is going to change this, integrating with Uber and other third-party platforms is a smart move.
In conclusion, Toast stock has strong upside potential thanks to its hot growth and market-share gains. As long as these trends continue, the business should continue to expand and create more shareholder value.
However, it might be on the verge of boosting its growth even more as it integrates with third-party delivery platforms because it helps to boost demand and land larger customers. It’s a move that helped Domino’s. And while Toast is a very different business than pizza making, it can help the tech company for the same underlying reason.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Domino’s Pizza, DoorDash, Toast, and Uber Technologies. The Motley Fool has a disclosure policy.
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