I covered FTSE 100 company Just Eat Takeaway.com (LSE: JET) earlier this month. And I said that I’d watch the stock closely. The shares fell over 7% on Friday on the back of some news, which I’ll discuss shortly.
So should I buy now? Well, I’m still going to monitor the share price. I reckon the company is facing some headwinds, which could impact its growth prospects. Here’s why it remains on my watch list.
Last week, New York City Council approved legislation to permanently cap commissions online food delivery firms can charge restaurants. This is going to impact the likes of Just Eat and competitors such as Uber Eats.
The new bill means that the FTSE 100 company will only be able to charge restaurants in the region of 15% on food orders and 5% for marketing. This news comes after restaurants have been temporarily closed to eat-in customers during the pandemic and have had to pay commission charges as high as 30%.
This doesn’t bode well for Just Eat. It purchased Grubhub to gain exposure to the US food delivery market. But it now has to contend with this issue. So what does this mean? Well, its revenue and profit potential is likely to be limited in the region. This means it will have to rely on volume growth rather than increasing its fees.
So far, New York City hasn’t enforced the bill as law. But if it does, I wonder how long will it be before other regions in the US might follow suit. In fact, this could even extend to other cities worldwide.
If this did happen, it would hit Just Eat’s revenue and profitability prospects. It would also make its acquisition of Grubhub seem expensive as it deals with this new legislation.
What happens now?
Grubhub has said that “this permanent price control is flagrantly unconstitutional and will hurt local restaurants, delivery workers and diners across NYC. We will vigorously fight this illegal action”.
I guess Just Eat’s competitors will be appealing this decision too. Of course this will take time and there’s no guarantee anything will come of it. But what it has done is create a headwind for the company and the online food delivery sector.
This comes after the FTSE 100 firm announced its half-year results earlier this month. Revenue growth was strong at 52% with the help of the Grubhub acquisition. Sales improved across all regions and it delivered strong revenue performance in the UK and Germany. The momentum experienced last year seems to have continued into 2021 so far.
But profitability for the six-month period took a hit. Increased marketing costs and tight labour markets in the US reduced profits.
Should I buy?
As I said, I’m worried about the headwinds the FTSE 100 company is facing right now. Increased investment and costs are eating into profitability. And those commission caps in New York City could be a huge issue if they spread to other cities. For now, I’ll continue watching the stock.
The post This FTSE 100 stock fell 7% on Friday. Should I buy? appeared first on The Motley Fool UK.
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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. and Uber Technologies. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.