More than 60% increase to date, Toast (TOAST 2.14%) The stock has had a strong rise in 2024, and the recent price increase could carry the restaurant software company’s momentum into next year.

The change in Toast’s credit card processing fee seems small at first glance, but it could be a driving force behind the company’s results and stock price in 2025.

second time’s the charm

At the beginning of September, Toast increased its credit card processing fee by up to 0.23%. This is the first time the company has increased its credit card processing fee in 12 years.

But this isn’t the first time the company has tried to raise prices. Last year, Toast charged restaurant customers a $0.99 fee on orders of $10 or more placed through its online ordering platform. However, the move angered restaurants and diners alike, leading Toast to quickly reverse the decision. The failed price increase and the ensuing negativities contributed to the resignation of CEO Chris Comparato. Co-founder Aman Narang has since taken over.

This time, Toast is rolling out the price increase at the restaurant level, giving business owners the option to decide how they want to pass the cost on to customers. Meanwhile, Toast is also introducing a surcharge feature to its point-of-sale system that will allow restaurants to add fees to help offset higher transaction fees for customers paying by credit card.

While 0.23% may not seem like much, Toast will process close to $160 billion in gross payment volume this year. Even a small change on this scale can cost millions of dollars.

Toast said the wage increase won’t affect all restaurants, but the company said earlier this year it would enter “a continuing cadence of small steady changes in prices.” This could be just the first in a series of price increases as the company tests how customers will react after last year’s stumble.

Image source: Getty Images.

Strong tailwinds continue

Besides price increases, Toast continues to grow in several aspects. The biggest one, of course, is to expand its presence to more restaurants. The company has a presence in approximately 120,000 locations, with approximately 750,000 restaurants in the US alone.

Toast also has a huge global opportunity. By the second quarter, the number had grown to 2,000 international locations in the UK, Canada and Ireland, up from around 1,000 at the beginning of the year.

Meanwhile, the company has expanded into adjacent areas such as cafes, hotel restaurants, bakeries and quick-service restaurants. It now plans to enter the retail food and beverage market, as it has recently added important features like deli management as well as support for SNAP and EBT for these businesses.

Toast has long been a strong innovator, offering new product modules to help restaurant customers better manage their businesses. This allows Toast to also grow within its large installed customer base.

Spending is rising in the restaurant industry. Growth in this area remains strong, with industrial sales rising 3.7% year-on-year in September. This was more than double the 1.4% growth seen in non-restaurant retail sales.

Time to buy stocks

Although some investors try to value Toast on a price-to-sales basis, this can be misleading due to the fintech’s low revenue. gross profit margin. Instead, investors need to look at the company’s annual recurring run rate (ARR), which includes subscription revenue and fintech gross profit.

The company increased its ARR by 29% to $1.47 billion last quarter; This means that stock transactions corporate value--ARR multiple of approximately 10. Thanks to a combination of price increases, geographic expansion, increased restaurant spending and new services, Toast could continue to experience very strong growth in the coming years. Therefore, I find this valuation attractive given the double-digit price-to-sales multiples of many figures. Software as a service (SaaS) Companies that are experiencing the same level of growth.

Next year, investors should keep an eye on how the change in credit card processing fees boosts Toast’s business. I don’t expect this price increase to be the last.