E-commerce giant Amazon.com (AMZN) is facing a civil trial over allegations that it misled customers into signing up for and retaining its Prime subscription service. The Federal Trade Commission (FTC) claims that Amazon has duped nearly 40 million subscribers and violated consumer-protection laws. The lawsuit seeks civil penalties, customer refunds, and a court order barring Amazon from using subscription practices that may mislead or deceive customers.
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Last week, the FTC scored an early win when a federal judge ruled that Amazon had indeed violated laws by collecting billing information from new subscribers before disclosing all Prime terms. Amazon has denied the allegations, insisting that it has always been clear about Prime’s terms and provides customers with simple options to cancel their memberships.
Subscription Cancellation Should Be Simpler
The FTC alleges that previously canceling a Prime membership required customers to go through four webpages and choose from 15 different options. However, Amazon simplified this cancellation process in April 2023, before the FTC’s complaint was filed.
The civil trial is beginning this week in a Seattle courtroom. Jurors will decide whether Amazon obtained customer consent fairly and if it misled customers into signing up for the Prime service and making the cancellation process confusing.
The subscription service was launched in 2005 and offers benefits such as free and fast shipping, access to Amazon’s streaming service, and other perks. In the U.S., it is currently priced at $139 per year or $14.99 per month.
Today, Amazon Prime is the world’s largest subscription program, with over 200 million members. Prime generates significant revenue for Amazon, with the company earning $12.2 billion in subscription revenues (including Prime) in the second quarter of fiscal 2025.
According to survey data from Consumer Intelligence Research Partners, about three-quarters of purchases on Amazon’s website are made by Prime members, who also spend twice as much as non-Prime shoppers. Having said that, the firm believes that the FTC’s case will have little impact on Amazon, as roughly 95% of the current Prime members do not wish to cancel their subscriptions anytime soon.
Is AMZN Stock a Buy, Hold, or Sell?
On TipRanks, Amazon stock has a Strong Buy consensus rating based on 45 Buys and one Hold rating. The average Amazon price target of $264.51 implies 14.3% upside potential from current levels. Year-to-date, AMZN stock has gained 5.5%.
