Amazon, FTC Reach $2.5 Billion Deal in Prime Subscription Case

0:00Scarlet Fu:So, like, 100 % of investors think that protection is important, but only about 70 % of advisors are, like, talking to their clients about that. Where do you think the disconnect is happening? There's these huge differences that exist in terms of what advisors think they're talking about to their clients, what clients are actually hearing. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions.

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1:08Scarlet Fu:Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Regulatory news coming out for our friends at Amazon. Amazon and the Federal Trade Commission, they reached a two and a half billion dollar deal in that prime subscription case. Let's bring in Spencer Soper. He is a Bloomberg tech reporter.

1:51Spencer, can you remind us of what this case is and then what the settlement does? Yes. So this this is about Amazon making, you know, kind of duping consumers into paying for prime memberships. So the FTC alleged that, you know, they tricked people into signing up through free trials and then made it difficult for them to to cancel their prime memberships if they wanted to. Internally, at Amazon, they even had a term for this cancellation process called the Iliad, which kind of referred to Homer's epic odyssey. So there was some pretty damning findings about how Amazon handled this. The settlement is$2.5 billion.

2:36$1 billion will go to the U.S. Treasury, and$1.5 billion is for consumer refunds. people will be refunded automatically if it was found they were affected by this case. And you're looking at about 50 bucks per affected consumer. So it's no huge windfall for consumers. And even for Amazon, two and a half billion dollars is probably like a parking ticket for you and me. But it puts this thing to bed and prevents Amazon from going to a trial, which probably would have been pretty embarrassing.

3:09Scarlet Fu:Okay, so that's what they want to avoid. Just give us some context here about how valuable the Prime program, Prime membership is to Amazon. I know that they don't always give a lot of numbers. The numbers that we do get have to do with how much it costs members. But in terms of the actual number of members and the amount that they spend, aside from knowing that they spend more than regular Amazon customers, we don't have a sense of how much they contribute to margins, for instance. Well, it's a huge part of Amazon. And the financial nitty gritty, I really don't have. But, you know, you're talking a huge penetration in the U.S.

3:47You know, more people are living a home that has a prime membership that don't, you know, so they've got a majority of the country. And then to your point, if you if you have a prime membership, you're paying Amazon one hundred and forty dollars a year or fifteen dollars a month. And so you're more likely to buy things on Amazon. And so Prime members spend about twice as much on Amazon as non-Prime members. So it's a critical part of their success. It's also very sticky. People tend not to cancel, which is why this – I don't see this as being a huge deal, this settlement. It's kind of like Amazon puts it to bed.

4:25But by and large, most people who join Prime are happy with it and stay with it. This was just kind of more of an embarrassment for them. Yeah, I think it's I don't we find it of huge value in our home. President Trump is still speaking with President Erdogan in their bilateral meeting there in the Oval Office of the White House. We will bring you headlines and the red headline just crossed the Bloomberg terminal here. According to President Trump, Trump, we want Erdogan to stop buying oil from Russia. So that's consistent with what the president has said. And we'll bring you more reporting on that.

4:58Spencer, what's the what else is in front of Amazon just in terms of some of the regulatory issues facing it? It's really hard to keep track of what's going on with some of these big tech companies and the regular headwinds. Yeah, that's that's a that's a good point. And and people should know this is this is an FTC case against Amazon was that was specifically against prime membership. there's still this whole question, this big antitrust lawsuit against Amazon, which is basically saying, you know what, this company is so big and has so much control and so much power that it's impossible for other companies to compete.

5:38That's still pending. And that's really the big threat to Amazon. And that's a holdover from the Biden administration. So in terms of the regulatory framework, the significance of this prime settlement is largely like a lot of people are wondering, OK, President Trump took office and there were a lot of these FTC cases pending against big tech companies like Amazon, you know, from from the Biden administration. What does the new administration mean for these cases? And so that that's really the big question here that we're still wondering about is Amazon was able to put this this kind of smaller prime investigation to bed and pay a little fine.

6:16But what is the outlook on these bigger cases that are more of an existential threat to Amazon? So what's the feeling out there in the West there with Silicon Valley and up there in Seattle area about this administration? Is this administration that can ultimately continue the light regulatory touch that the tech industry has always enjoyed or maybe they won't be able to deliver on that how concerned is greater technology greater silicon valley about the regulatory environment well i think that they're all trying to very delicately figure out how to um finesse their way through this administration i guess i i i i think if they're if if and if trump is anything he's unpredictable so i don't think that they take anything for granted.

7:06And, you know, that is a good question. And I wish I had a nice, simple answer for you. Stay with us. More from Bloomberg Intelligence coming up after this.

7:17Scarlet Fu:I don't love the word retirement because I think it has negative baggage. I like the word financial independence. If you were to be financial independent, like how would you spend your time? And that's exactly what a lot of my clients talk about. And the term they'll use is a work optional lifestyle. I agree. Like the next gen, millennials and below are not thinking about retirement. We're thinking about let's find something that we enjoy, that we can have financial independence. I think that's a better way to think about the end of life stage versus quote unquote retirement.

7:47Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined.

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8:43Scarlet Fu:Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. Ask yourself, what are your best people spending their time on right now? Expense reports, receipt chasing, month-end close that takes weeks. You become what you spend on, and that's not what you're building toward. Brex is the intelligent finance platform that eliminates that work before it starts. AI agents that handle the manual stuff automatically, so your team can spend their time on what actually compounds.

9:21Scarlet Fu:It's time to get Brex AF. Learn more at brex.com slash AF. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Starbucks. And this is round two of layoffs under new CEO Brian Nichol. Although, can we still call him new? No, I don't know. No, he's in there. He owns it. OK, he owns it. So let's bring in Michael Halen, who owns the restaurant news coverage for us here at Bloomberg Intelligence. He is our senior research and food service analyst.

10:01Scarlet Fu:Michael, when you hear the news about Starbucks closing stores, cutting jobs, 900 jobs,$1 billion restructuring effort, it feels like deja vu. Yeah, but you know what? This was very clearly communicated to the street back in April on their fiscal 2Q call. Management said that, you know, we expect more restructuring charges. We're going to continue to evaluate our store base. Really, management wanted new CFO, Kathy Smith, to be involved in the process. So this was not a surprise. If we hear about some more store closures and restructuring, then maybe you'll see a bigger reaction in the stock. All right.

10:41A shout out to my Starbucks on Route 35 in Wall Township, New Jersey. They do a great job. Great folks. Very efficient. Very good. Mike, what does this company need to do? What do they say is on their to-do list to turn this company around? What are you looking for? Yeah, it's operations and marketing. And we're starting to see things kind of inflect here. We think fiscal 26 should be a nice bounce back year. So, you know, first it's with the operations, right? So it's eliminating menu items, increasing labor, which baristas were very happy about, creating a smart queue for mobile orders, right?

11:23So the stores aren't as chaotic and baristas aren't serving, you know, mobile orders for somebody 30 miles away before helping someone inside the store. And then service standards, right? They're rolling out these green apron service standards this year. It's a big investment on training and really nailing the consumer experience in the store. And then from there, it's the marketing and marketing seems to be working. They pulled back on discounts and what they're doing is more marketing. You'll see some TV ads, right? They're doing more digital marketing. And we think that's a smart move. It seems to be paying early dividends.

12:01Starbucks non-rewards member transactions are up. Non-discounted rewards members transactions are up. And we think these are a sign that sales are going to inflect higher in the coming months.

12:15Scarlet Fu:Okay, but this is taking a while. Paul and I are just saying that Brian Nickel owns this now. He's been CEO for a year and they're still in turnaround mode. They're still in kind of like, let's figure out our path forward. Investors, please be patient. Are investors going to continue to be patient for another six months to one year? I don't think they're going to be patient for six months to one year in terms of the stock price. I think Brian Nickel's job is very much safe. You know, you can't turn around an air craft carrier on a dime, right? This is a massive organization, 18 ,000 stores just here in North America, over 40 ,000 globally.

12:50So, yes, this is taking longer than a lot anticipated, myself included. Are investors going to be happy if they don't see same-store sales inflect here in the first quarter of fiscal 26? No, they're not going to be happy, and you're going to see it reflected in the share price, right? So, yeah, I mean, I think they're making the right moves. This has been a longer turnaround than than most had expected. But, you know, I think Brian Nichols pressing all the right buttons right now. Yeah, I just got back from some vacation time in Italy. I don't think I saw too many Starbucks in Italy.

13:27Scarlet Fu:I think they have a Starbucks reserve somewhere. It looks different than the regular Starbucks store. All right. So, Michael, I mean, you said they have 40 ,000 stores on this planet. Is that enough or are they still going to be putting more out there? um they're still going to be building um you know i think they need to you know they're going to have to nail this u.s operation and remodel and and um they're going to spend a little bit less on on building stores in the u.s a little bit more on uh renovating them okay uh and then china they really want to get that market nailed before they accelerate accelerate growth so these are their two main markets for growth.

14:08They've been the company's two major markets for growth for growth for a long time. But management's doing the right thing. They pulled back on growth to kind of nail the operations, the marketing. Once they get same-star sales and traffic trending back up strongly again, you'll see them re-accelerate development. Stay with us. More from Bloomberg Intelligence coming up after this. Support for this show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf.

14:48Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market.

15:27Scarlet Fu:Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., Member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. Ask yourself, what are your best people spending their time on right now? Expense reports, receipt chasing, month-end close that takes weeks. You become what you spend on, and that's not what you're building toward. Brex is the intelligent finance platform that eliminates that work before it starts. AI agents that handle the manual stuff automatically. so your team can spend their time on what actually compounds.

16:06Scarlet Fu:It's time to get Brex AF. Learn more at brex.com slash AF. He's dribbling the ball with everything on the line. He's driving down the pitch. He's facing price hikes and cuts past him. Carrier Contracts tries to block him. Oh, he leaves him in the dust. He's at the edge of the box. He cuts past the nonstop group chat trash talk. He clears on goal. He shoots. No! Unlimited data for$25 a month forever. Visit your local Boost Mobile store today to get unlimited data with a price that never changes. Boost Mobile. After 30 GB, customers may experience lower speeds. Customers will pay$25 a month as long as they remain active on the Boost$25 Unlimited plan.

16:44Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Boy, some big news today if you're in the used car business. CarMax, Richmond, Virginia-based company, stocked down 20 % today. Some disappointing results and guidance here. Let's get the bottom line here, what's going on. Steve Mann, Bloomberg Intelligence Global Autos and Industrial Research Analyst, joins us here. Steve, just tell us what's going on with CarMax.

17:20The stock down 20 % today. What's the news? Yeah, it's significantly down today. For a couple of reasons. One is the auto sales, used car sales, wasn't as good as expected in the second quarter. And then secondly, it's really on the write-down on some of their loans. And the first item is actually not that surprising because there's been a lot of pull forward demand. Remember in the first quarter when Trump announced these tariffs on autos, A lot of the consumer actually went ahead and bought a lot of cars in concern that prices will go up. So the pull for demand really dented second quarter sales.

18:05Then talk to us about the other side of the equation, kind of the rate off of some of these auto loans here. Is that unusual for CarMax? Well, I mean, this is because this is on the back of the Tricolor Holdings bankruptcy, if you remember. They actually went bankrupt because they wrote a lot of subprime loans on potentially undocumented, allegedly undocumented buyers. But this seems to be more of a unique case for Tricolor Holdings. So the write down is a little bit kind of special, given the coincidence that's with the Tricolor. But it's not really out of the ordinary for these auto companies to actually write down some of the loans.

18:54The interest rate has been high, right? I think the bright spot now is that the interest rates are coming down. So we don't actually see that it is an industry issue, but it does cause for concern. It's not a red flag. I would say it's more of a yellow light, yellow flag. Talk to us just, let's step back a little bit. Talk to us about where we are in the auto business with just how many cars are being produced these days in the U.S. And what does that mean for the used car market like the CarMaxes of the world? Where are we today? Yeah, I mean, it's about the annual sales in the auto industry today in the U.S.

19:34It's around 16 million. If you include Canada, Mexico is around 18, 19 million. The used car market is actually bigger than the new car market. It's a very vibrant market and look it's an interesting market. There are a lot of used cars that's coming back from leases. I remember during the COVID era, we had quite a bit of vehicle sales and prices were really high. And so there's quite a few used cars coming back in the market and that's impacting prices as well. So even with lower prices, used car sales was down in the second quarter. But then again, it's a function of the pre-buy that happened in the first quarter.

20:23So I actually feel that we're probably near the trough, given that interest rates are actually coming down. So, you know, we talk about the SAR, the seasonally adjusted rate of$16 million. I remember back in the day,$17 million was kind of the norm here. Is this a new, lower, normal level of production from the U.S. OEMs? Yeah, you're absolutely right. We haven't really gotten back to the pre-COVID days of, you know, 17 million SARS. But I think this is a new normal of 16 million. Look, the average price for a vehicle has actually gone up quite a bit. Today, it's about$48 ,000 per vehicle. You know, before COVID, I think we were, you know, around 40.

21:12So significant increase since then. So there is some concerns about affordability. You've seen financing terms being extended. Car buyers actually can get loans for 72-month loans, up to 84-month loans, just to make the vehicles more affordable. So I do believe this is a new normal. I don't see prices coming back down. Prices don't usually come back down once they go once they're increased. So I think this is going to be the new normal. So does that mean people are staying in their cars longer because the affordability of getting a new car is that much more difficult? Yeah, that's a great question.

21:58I think they are going to stay in their cars a little bit longer. Look, the cars today are much more reliable, much more durable than they have in the past. So they do last a little bit longer. And if you throw in EVs, right, EVs, it's probably around 6, 4, 5 % of the total fleet today. Those last also a lot longer with less moving parts. So who really benefits are actually the aftermarket retailers. like O 'Reilly and AutoZone. You know, as people keep their cars a little bit longer, they're probably going to either, you know, go get it repaired by the dealer or the mom-and-pop shop, or they do it themselves.

22:43Scarlet Fu:This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern, on Bloomberg.com, the iHeartRadio app, Tune in and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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23:49Scarlet Fu:If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get Brex AF, a gentic finance that eliminates that work before it starts. Learn more at brex.com slash AF. It's called soccer. It's called football. Uh, soccer. Football. Domino's Best Deal Ever lets you get any pizza, including stuffed crust, with any toppings for$9.99. We can agree on that. Yeah, fully. So pineapple? Don't ruin it. Get any pizza including stuffed crust with any toppings for$9.99. Finally something everyone can get behind. And if the refs disagree, that's between them and Domino's.