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Toast stock plummets after earnings report, but early investors can start cashing out

More than $3 billion of stock can be sold early, ahead of the six-month lockup period

Toast CEO Chris Comparato, photographed on the floor of the New York Stock Exchange in September, holds 11.4 million shares in the restaurant-tech company.
Toast CEO Chris Comparato, photographed on the floor of the New York Stock Exchange in September, holds 11.4 million shares in the restaurant-tech company.Richard Drew/Associated Press

Until Wednesday, it seemed like a sure bet that early investors and top executives at Boston tech company Toast would be looking at a $3 billion windfall this week.

But after Toast reported disappointing third-quarter earnings on Tuesday evening, its stock price plummeted as much as 19 percent to a low of $49.51.

If the stock closed on Wednesday at $50 or above, those early investors and executives would be allowed to cash out some of their winnings starting on Friday. If the stock price was lower, they would have to wait to sell until next spring and — while they are sitting on huge paper profits now — no one can predict for certain what will happen to the restaurant-tech firm’s stock price over the next few months.


After furious trading above and below the $50 level in the last hour on Wednesday, the stock closed at $50.01, freeing the insiders to sell this week. The 5.5 million shares traded marked almost triple the average daily volume.

The high-stakes uncertainty related to a peculiar quirk of initial public offerings. As part of Toast’s Sept. 22 debut on the New York Stock Exchange, early investors, executive officers, and directors who held almost 9 out of every 10 shares of Toast agreed not to sell any stock until 180 days after the deal was completed.

The point of such lock-up agreements is to prevent a massive wave of selling that could depress the stock price and wipe out new buyers who invested in the IPO at $40 per share.

But the lock-up agreement had a few loopholes, and one big one stated that if Toast’s stock price rose at least 25 percent from the IPO price of $40 for a sustained period, early investors could sell up to 15 percent of their holdings immediately.


Toast’s stock price has been holding above $50, marking a 25 percent gain, for the past few weeks. In a Nov. 5 press release, the company said that if the stock closed above $50 on Nov. 10, investors could sell 65.4 million shares that would otherwise remain locked up. Those shares would be worth more than $3 billion.

That seemed like a sure bet until this week, when Toast reported that its revenue in the third quarter doubled from a year earlier to $486 million while its net loss more than quadrupled to $253 million. The revenue was higher than Wall Street analysts had forecast, but the net loss was much larger than expected, sending Toast’s stock into a tailspin on Wednesday.

Among those who could be affected are CEO Chris Comparato, who holds 11.4 million shares; cofounder Stephen Fredette, with 33.2 million shares; and cofounder Aman Narang, with 24.6 million shares.

Venture capital funds that owned significant amounts of stock at the time of the IPO included Tiger Global, with 61 million shares; Bessemer Venture Partners, with 59.6 million shares; and T. Rowe Price, with 28.6 million shares.

Investors in Toast before the company went public paid an average $1.88 per share for their stock, the company disclosed in its IPO filing.

Aaron Pressman can be reached at aaron.pressman@globe.com. Follow him on Twitter @ampressman.