By Shares of Toast Inc. experienced a sharp decline of nearly 10% in morning trading on Wednesday following the announcement that the restaurant-technology company would be eliminating its 99-cent order-processing fee. The decision to remove the fee came as a response to customer feedback and a thorough review of the situation, according to Chief Executive Chris Comparato. The company filed a letter with the Securities and Exchange Commission (SEC) to communicate this change to its customers.
Toast reassured investors that the removal of the fee would not have any significant impact on its previously announced guidance for the second quarter or the full year. Despite this assurance, Wall Street expressed disappointment, as evidenced by the significant drop in the company’s stock.
Bernstein analyst Harshita Rawat commented on the financial implications of sustaining the fee, stating that it could have had a sizable impact on gross profit, with some estimates even reflecting a potential 7-10% run-rate impact. She also noted that if the fee had been maintained, Toast would have likely seen a much higher impact on earnings before interest, taxes, depreciation, and amortization (EBITDA), given the fee’s 100% margin.
Rawat further suggested that sell-side analysts may not need to revise their estimates as a result of this reversal, but buy-side analysts might have to consider making adjustments. Additionally, she emphasized that it is still too early to assess any long-term reputational damage caused by the initial implementation and subsequent withdrawal of the 99-cent fee. Toast is often regarded as a champion for restaurants, particularly in an environment where these establishments frequently contend with fees from other third-party platforms.
Despite the recent decline, shares of Toast have experienced a 32% increase since the beginning of the year, outpacing the S&P 500’s 19% rise.
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