Key Points
-
This is a major business for the company.
-
Similar measures have been passed in other North American markets, and more are currently under consideration by state legislatures.
- 10 stocks we like better than StubHub ›
StubHub Holdings (NYSE: STUB) took a drubbing over the past few days, due to a new law in a major metropolitan market that could ding the ticket company’s business. Investors didn’t like the sound of that, and many reacted by selling their shares. This resulted in a 13% dive over the week for StubHub’s stock, according to data compiled by S&P Global Market Intelligence.
No fan of RESALE
On Tuesday, the Washington, D.C. City Council passed the RESALE Act into law. The measure, whose name stands for “restricting egregious scalping against live entertainment,” imposes a 10% cap on secondary-ticket sale markups. That’s quite the curb on StubHub’s local business, as it relies on hefty markups for profitability.
The law takes effect on Jan. 1, 2027.
The following day, an analyst took the time and effort to put a financial figure on this. Citigroup’s Jason Bazinet published his take on the RESALE law and how it’ll impact StubHub.
He pointed out that D.C. joins a growing list of North American jurisdictions that have imposed legal caps on ticket resales; the three others are Maine and Vermont, and the most populous province in Canada, Ontario. Similar measures have been introduced in the state legislatures of New York, Massachusetts, California, and North Carolina.
In Bazinet’s estimation, if those caps average 15% for StubHub, its revenue could take a hit of around 30%. It wouldn’t take much to affect the company’s profitability, either; according to his calculations, if around 20% of its ticket sales are subject to legally mandated caps, its earnings before interest, taxes, depreciation, and amortization (EBITDA) could slide by about $95 million.
More to come
Ticket resale price caps are an easy win for legislators, since entertainment consumers, already coping with high prices for live events, aren’t very fond of markups.
I’d imagine more such limits will be imposed, and not only in those four states currently considering them. This is an important part of StubHub’s business, so the company will surely have to find ways of mitigating the financial impact of the changing legal landscape.
Should you buy stock in StubHub right now?
Before you buy stock in StubHub, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and StubHub wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $400,964!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,272,955!*
Now, it’s worth noting Stock Advisor’s total average return is 930% — a market-crushing outperformance compared to 210% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
