Toast stock gets burned as company reverses course on controversial fee

Shares of Toast Inc. were tumbling nearly 10% in morning trading Wednesday after the restaurant-technology company said it was doing away with a 99-cent order-processing fee that drew pushback from customers.

“We made the wrong decision and following a careful review, including the additional feedback we received, the fee will be removed from our Toast digital ordering channels,” Chief Executive Chris Comparato said in a letter to customers that it also filed with the Securities and Exchange Commission.

Toast TOST, +2.32% shared in the filing that it “does not expect this decision to have any material impact to its previously announced guidance” for the second quarter or the full year.

Wall Street, however, found the update disappointing, judging by the stock’s sharp move lower.

“The financial impact (of the fee sustaining) would have been sizable and some buy-side numbers likely already reflected a potential ~7-10% run-rate impact (some were even higher) on gross profit,” Bernstein analyst Harshita Rawat wrote in a note to clients. And Toast likely would have seen a “much higher impact” on earnings before interest, taxes, depreciation and amortization (Ebitda) had it kept the fee, given a “100% margin.”

She added that sell-side analysts probably wouldn’t have to tweak their estimates as a result of the reversal, but buy-siders might.

“We believe it is still early to assess any long-term reputational damage from the controversial decision (and subsequent withdrawal) to implement the 99-cent fee,” she continued. “Toast is often positioned as a champion for restaurants especially in an environment where restaurants often grapple with fees from other third-party platforms.”

Shares of Toast have gained 32% so far this year as the S&P 500 SPX, +0.40% has risen 19%.

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