Shares of ride-hailing and delivery leader Uber (UBER -3.00%) were initially doing much better than the plunging stock market today, with only moderate declines as of midday. However, in the afternoon, shares sank as much as 5.3% at one point, before recovering to a 4.4% decline by 2:26 p.m. ET.
Midday, news came over the wires that the Federal Trade Commission (FTC) was suing the company over tactics for signing up users to its Uber One subscription service.
Did Uber flout the Restore Online Shoppers’ Confidence Act?
The FTC’s suit alleges that Uber used deceptive practices, misleading consumers over the benefits of an Uber One subscription, while also making it hard to cancel the subscription, and also charging users without their consent. That would violate the Restore Online Shoppers’ Confidence Act, which was initially passed in 2010. Of note, this is the first lawsuit launched against a major tech company by the FTC under the new Trump administration.
One of the more worrying allegations is that Uber makes it deceptively easy to accidentally sign up for Uber One, with the FTC saying many users had complained that they had no idea how they had signed up for the subscription, and didn’t know why they were charged for it. And canceling is “extremely difficult,” alleges the FTC. “Users can be forced to navigate as many as 23 screens and take as many as 32 actions to cancel,” wrote the FTC in its press release.
In response, a spokesman for Uber told CNBC that “Uber One’s sign-up and cancellation processes are clear, simple, and follow the letter and spirit of the law… Uber does not sign up or charge consumers without their consent, and cancellations can now be done anytime in-app and take most people 20 seconds or less.”
Uber has its fans, but the stock is risky
Uber has been in the news of late, given that prominent investor Bill Ackman took a big position in the stock earlier this year. However, the stock isn’t exactly super-cheap at these levels, and is somewhat dependent on continued double-digit growth. Additionally, the emergence of autonomous robotaxis are a potential long-term threat, despite Uber partnering with robotaxi leaders.
If Uber has been engaging in deceptive practices to boost revenue in the recent past, shareholders could see a marked slowdown in near-term results. And with economic clouds gathering as a consequence of Trump’s tariff war, Uber’s stock could struggle for gains in the near term.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool has a disclosure policy.