While executives at Ozempic might be wining and dining doctors, not everyone is enjoying a celebratory Toast…
Analysts at Mizuho worry that consumers will be pulling back on dining out, and Toast will suffer over the long term as a result.
Ozempic prescriptions in the U.S. reached an all-time high in the last week of February, with over 373,000 prescriptions filled, according to a J.P. Morgan analysis of IQVIA data shared with CNN. That’s an increase of 111%, compared with the same time last year. Of these, more than half were new prescriptions, CNN said.
Toast derives the lion’s share of its revenue from restaurant sales. In a note out October 1, Mizuho’s Dan Dolev and his team lowered their price target for Toast’s stock and downgraded the company, in large part because of these concerns.
“Longer-term, we believe the rise of GLP-1 drugs such as Ozempic for Type-2 diabetes and weight loss could lower restaurant spend, thus weighing on TOST’s GPV growth expectations. Our base case valuation of $16 does not assume any meaningful GPV impact from Ozempic. It assumes that by 2025 these drugs could lower total restaurant spend for 2-3mn individuals in the U.S. by ~ $4B, or an estimated $0.8B annual GPV headwind to TOST. Our bear case assumes a much higher penetration of Ozempic (~15M) amongst the ~30M U.S. individuals with Type-2 diabetes and ~100M who are categorized as obese, with additional use cases for alcohol and smoking treatment. This could present an incremental ~3% or $5B potential headwind to our 2025 GPV expectations.
The GLP-1 threat to the restaurant industry and by implication, TOST, is real, in our view. Companies in the Medical Technology space that are perceived to be exposed to these drugs have seen their share price decline nearly 20% since July 1, on average, with a handful of stock prices declining 30-45%.”
Toast declined to comment for this story.
Not every analyst is as bearish. According to MarketWatch, 9 analysts have buy ratings, 12 have holds and only 1 recommends selling. Harshita Rawat, Senior Research Analyst at AB Bernstein who’s covered the payments space for more than a decade, said that while Ozempic could have an impact, it’s too early to tell. While Ozempic was first approved by the FDA in 2017, its popularity is far more recent.
According to a recent article in the WSJ, Morgan Stanley has projected that 24M people, or nearly 7% of the U.S. population, will be taking such medications in 2035.
“If it’s really the silver bullet, and they don’t discover some awful side effects longer term, it will affect everything,” Jake Gibson, Co-Founder and Partner at Better Tomorrow Ventures, said. “These types of preventable illnesses - heart disease, diabetes, etc - generally based on diet, are the biggest contributors to healthcare costs, deaths, etc.”
The restaurant industry is adapting, and that would help Toast as well. Restaurants in LA, one of the most popular locations for Ozempic (thanks Hollywood), are offering “Ozempic friendly” dishes. At Spago, chef Wolfgang Puck will 'willingly reduce portion sizes on request'. At Upper East Side’s Sojourn and Sojourn Social on Second Avenue, owner Sammy Musovic is offering smaller versions of customer favorites as tuna tartare ($9 instead of the regular $14) and duck spring rolls ($8 for 3 rolls, rather than $12 for 5), and a burger without the fries for $18 instead of $25.
Earlier this month John Furner, president and CEO of Walmart U.S., told Bloomberg that the retailer is already seeing an impact on consumer demand due to Ozempic, Wegovy and other appetite-suppressing medications. The retailer said it’s studying changes in sales patterns using anonymized data on shopper populations, and it can look at the purchasing changes among people taking the drug and can also compare those habits to similar people who aren’t taking the shots.
The CEO of the company behind Pringles and Cheez-Its also recently said it’s studying the drugs’ potential impact on dietary behaviors.
You might ask why isn’t Square mentioned? Only about half of its business is POS, and if that, only about 20% is restaurants, says Dolev. Toast is essentially 100% restaurants.
