Analyst Note| Ioannis Pontikis |
On Nov. 3, the New York City Council introduced a bill that will exempt food delivery companies from the cap on fees it charges to a restaurant if the former offers the restaurant the option to obtain delivery services for a fee consistent with all fee caps, and the option to be listed on the platform for a fee consistent with the caps on delivery and transaction fees. According to an announcement released by the Chamber of Progress, New York's amendment follows on similar changes in San Francisco and Chicago. As a reminder, in July 2022, the San Francisco Board of Directors created an amendment to the original legislation for food delivery companies that offer 15% pricing as an option for restaurants, with additional charges for marketing and other promotional activities. In other words, restaurants that are willing to pay more for additional services such as advertising, search engine optimization, and credit card processing will be allowed to do so, in which case the final take rate for the food delivery platform could be similar to the one they are charging restaurants in states without a permanent fee cap. Although the timing of implementation of this amendment is uncertain, we note that from our food delivery coverage, Just Eat Takeaway, through GrubHub, is affected the most, given its significant exposure and relative size in the area. According to the company, in the first half of 2022, fee cap headwinds in North America amounted to EUR 73 million at the EBITDA level (the majority of which was in New York). Considering that we expect the group's EBITDA to be barely positive in fiscal 2023, the news of the amendment on permanent fee caps in New York is material and positive for shares, which were up about 15% in intraday trading. Given the uncertainty around the timing of implementation and our contrarian expectations that fee caps would likely fall off by 2024 (base case), we don't expect to change our fair value estimate for Just Eat Takeaway.