Why StubHub Stock Plummeted by 13% This Week
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.
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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.
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The law takes effect on Jan. 1, 2027.
Image source: Getty Images.
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.
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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.
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