UBER Faces a Blow as NYC Approves Cap on Food Delivery Fees

Uber Technologies’ UBER Delivery division faces a headwind as the New York City Council approves a legislation to permanently cap commissions that the company charges from restaurants on food delivery orders. Apart from Uber, other food delivery companies affected by the decision, including DoorDash DASH and Just Eat Takeaway.com’s unit Grubhub, are expected to fight against the price controls, a Reuters report stated.

The bill will restrict the amount food delivery companies can charge restaurants to 15% per delivery and 5% for advertising and other services.

Last year, several U.S. cities, including New York, had imposed temporary caps on commissions, which were as high as 30%, to help restaurants cope with dented margins amid the pandemic-led woes.

Uber Technologies, Inc. Price

Uber Technologies, Inc. price | Uber Technologies, Inc. Quote

Another bill passed by the council requires food delivery companies to be licensed by the Department of Consumer and Worker Protection every two years. Both bills need to be signed by Mayor Bill de Blasio and would take effect 120 days after being sanctioned as law.

San Francisco, CA has already implemented permanent commission caps of 15% on each delivery order.

Per the Reuters report, Uber, carrying a Zacks Rank #3 (Hold), is yet to comment on the situation. Grubhub said in a statement, “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.”

DoorDash, carrying a Zacks Rank #4 (Sell), has reportedly said that the commission caps are "unnecessary and unconstitutional ... New York's restaurants need choice more than ever, and this dangerous government overreach will severely limit the options small businesses rely on everyday to succeed."

Upon enforcement, the commission caps are likely to hurt margins and revenues of food delivery companies. This adds to Uber’s struggles on the bottom-line front as the company’s Mobility business continues to be impacted by softness in ride volumes in certain parts of the world that are experiencing higher number of coronavirus cases.

Key Picks

Some better-ranked stocks in the Internet - Services industry are Internet Initiative Japan IIJIY and Shopify SHOP, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Internet Initiative Japan and Shopify have rallied more than 67% and 43% in a year’s time, respectively.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.