Amazon makes history, but not the good kind, as stock drops

Amazon (NASDAQ: AMZN) was trending lower on Thursday after the ecommerce and cloud computing giant got hit with a massive and historic fine.

The U.S. Federal Trade Commission announced on Thursday that Amazon must pay $2.5 billion in fines and penalties for violations related to its Amazon Prime service.

Specifically, the FTC found that Amazon mislead 35 million consumers by enrolling them in Amazon Prime subscriptions without their consent. Also, according to the order, they knowingly created a “complex and difficult process” for consumers seeking to cancel their subscription.

The FTC charged Amazon along with several executives with violating the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA).

Today, the Trump-Vance FTC made history and secured a record-breaking, monumental win for the millions of Americans who are tired of deceptive subscriptions that feel impossible to cancel,” FTC Chairman Andrew Ferguson said. “The evidence showed that Amazon used sophisticated subscription traps designed to manipulate consumers into enrolling in Prime and then made it exceedingly hard for consumers to end their subscription.”

Largest FTC fine ever

The $2.5 billion in penalties includes a $1 billion civil penalty, paid to the FTC. It is the largest fine ever for a case involving an FTC rule violation.

Amazon must also pay a total of $1.5 billion back to some 35 million consumers who were impacted by this violation. The FTC said this is the second-highest restitution award that the FTC has ever handed out.

Further, Amazon was ordered to make changes to its Prime enrollment and cancellation processes. Specifically, they must:

• Include a clear and conspicuous button for customers to decline Prime. Amazon can no longer have a button that says, “No, I don’t want free shipping.”
• Include clear and conspicuous disclosures about all terms of Prime during the enrollment process, such as the cost, the date and frequency of charges to consumers, subscription auto-renews, and cancellation procedures.
• Create an easy way for consumers to cancel Prime, using the same method that consumers used to sign up.
• Pay for an independent supervisor to monitor Amazon’s compliance with the consumer redress distribution process.

Earnings impact?

The settlement ends the years-long dispute, which led to the FTC filing a suit against Amazon in 2023.

Amazon and our executives have always followed the law and this settlement allows us to move forward and focus on innovating for customers,” Amazon spokesperson Mark Blafkin said, reported CNN. “We work incredibly hard to make it clear and simple for customers to both sign up or cancel their Prime membership, and to offer substantial value for our many millions of loyal Prime members around the world.”

The settlement comes right before the end of the third quarter, so it should have an impact on the company’s upcoming earnings. Amazon generated $18.2 billion in net income in Q2, so this amounts to about 14% of earnings.

Amazon stock was down about 1% on Thursday and is off 6% this week. YTD that stock price has been flat.