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Why Grubhub Stock Fell Today

By Evan Niu, CFA - May 14, 2020 at 1:47PM

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New York City moves to cap commissions for food delivery apps.

What happened

Shares of Grubhub (GRUB) have fallen today, down by 8% as of 12:20 p.m. EDT, after the New York City Council late yesterday approved a measure that caps the fees that online food ordering and delivery platforms can collect. New York City is one of the biggest markets for food delivery apps.

So what

The New York City Council voted yesterday on an emergency bill that is designed to help small businesses and local restaurants during the COVID-19 pandemic. The public health crisis has forced many restaurants to close dining rooms while trying to compensate with online delivery orders, but those tech companies extract steep commissions that can reach as high as 40%.

GrubHub for restaurants app displayed on a smartphone

Image source: GrubHub.

The legislative package limits commission on delivery orders to 15%, in addition to a 5% maximum charge for other types of service charges, bringing the total maximum fee to 20%. A previous version of the bill had limited the total fee to 10%. The delivery platforms are also prohibited from charging restaurants for telephone calls that do not result in orders, a practice that GrubHub has been criticized for.

In a hearing to discuss the bill ahead of the formal vote, Councilman Francisco Moya likened Grubhub to a "leech," according to The New York Post. In a statement, City Council Speaker Corey Johnson said:

Small businesses and restaurants are the heart and soul of New York City and right now, they are hurting. They are paying high fees, getting harassed and are worried about losing their homes. They need help and this small business package is designed to protect them during this pandemic.

Now what

Consumers in the Big Apple recently filed an antitrust lawsuit against the platforms regarding high fees, arguing that those costs are inevitably passed on to customers in the form of higher prices. Uber, which is also affected by the news given its Uber Eats platform, is reportedly weighing a $6 billion acquisition offer for GrubHub.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

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