Amazon. AMZN 2.19% com Inc. will pay $61.7 million to settle a Federal Trade Commission charge, the regulator said Tuesday, hours before the retail giant is poised to post record quarterly sales driven by a surge in online holiday shopping with people stuck at home.
The FTC said the company would refund money it failed to pay some Amazon Flex drivers the full amount of tips they received from customers over a more than two-year period. Amazon, the FTC said, ended the practice in 2019 only once it became aware of the federal investigation of its practices.
Drivers under Amazon’s Flex program that began in 2015 use their own vehicles to deliver packages for the e-commerce giant. The FTC said Amazon changed the terms for driver payments without disclosing the adjustment. The payment, it said, represents the full amount Amazon withheld from drivers and would be passed on to them.
“While we disagree that the historical way we reported pay to drivers was unclear, we added additional clarity in 2019 and are pleased to put this matter behind us,” an Amazon spokeswoman said.
Rep. Ken Buck (R., Colo.), who has criticized other Amazon practices, tweeted: “This is a drop in the bucket for Amazon.” He added: “We must do more to curb their anticompetitive behavior.”
The figure represents a modest amount of money for Amazon. Wall Street expects the company to post more than $100 billion in quarterly sales for the first time after the bell Tuesday, days after Apple Inc. hit that financial milestone.
Analysts surveyed by FactSet on average see Amazon reporting $119.7 billion in quarterly revenue, with the company generating an expected $3.7 billion in net income. Amazon in October forecast fourth-quarter sales to be between $112 billion and $121 billion.
Few companies have seen growth take off like Amazon during the global health crisis. The explosion in online shopping vaulted the company’s sales to record figures as the e-commerce sector grew by around 50% throughout last year, according to some analysts. Roughly 40% of online shopping in the U.S. happens at Amazon, according to research firm eMarketer, helping drive a 76% increase in the company’s share price last year and raising its market valuation to more than $1.6 trillion.
Sales in the December quarter received an added boost from Amazon’s annual “Prime Day” shopping event moved from its usual summer schedule to October due to the pandemic. Amazon makes billions from the two-day event.
Amazon sales for all of 2020 are projected to have risen about 35% year-over-year to around $380 billion and advance again this year, according to FactSet.
Although the pandemic turned into a sales bonanza for the Seattle-based company, Amazon initially struggled to handle the surge in demand. The company recovered in part by rapidly scaling up. It added more than 400,000 employees, lifting its global workforce to more than 1.1 million staff and increased its fulfillment and logistics square footage by about 50% last year.
The efforts appeared to pay off. “There was a flight to reliability from consumers throughout the year, and that was especially true during the holiday seasons when there were shipping concerns,” said Andrew Lipsman, an analyst with market research firm eMarketer. “That advantaged Amazon.”
Amazon’s other major business, offering cloud-computing services where it rents server capacity and software tools, also saw strong demand during the pandemic with companies broadly accelerating their digital investments. Amazon Web Services has been the company’s main profit driver. The pace of growth in that segment has slowed, though, as its scale has increased and rivals such as Microsoft Corp. and Alphabet Inc.’s Google have pushed to steal market share.
The slowdown has been offset by Amazon’s advertisement unit, which has seen sharp growth and is becoming a major part of its business.
Amazon’s results are expected to add to a strong earnings season for Big Tech, underscoring how the pandemic has lifted those companies’ fortunes while devastating other sectors of the economy. Microsoft last week posted record quarterly sales driven by increased demand for videogames and accelerated adoption of its cloud-computing services. Apple and Facebook Inc. finished their fiscal years with their most profitable quarters ever.
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Amazon’s success has come while the company confronts regulatory and labor battles. Employees at one of its warehouses in Alabama are voting on whether to unionize in a move that could reshape the relationship between the company and its workers. And federal regulators in Washington, D.C., have continued to probe the retailer’s business practices as part of a broad investigation into the market powers of large tech companies. In addition, Connecticut is investigating how Amazon sells and distributes digital books, and California is looking into how Amazon treats sellers in its online marketplace.
The company also is facing questions about rising costs and other issues with some of its businesses. Amazon said it spent roughly $10 billion on coronavirus safety measures last year, including regularly testing workers for Covid-19. Physical store revenue, which includes that from Whole Foods Market, has decreased recently as the pandemic has changed shopping patterns.
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—Dave Sebastian contributed to this article.
Corrections & Amplifications
Amazon.com is making a repayment of driver tips it withheld to the Federal Trade Commission. An earlier version of this article incorrectly called the repayment a fine. (Corrected on Feb. 2)
Write to Sebastian Herrera at [email protected]
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