Amazon Lawsuit: Potential Outcomes and Impact on Stock

by Warren Seah is facing a long-awaited lawsuit from the Federal Trade Commission (FTC). While the possibility of the company being broken up is the headline-grabbing potential outcome, it may not necessarily spell disaster for the online retail giant and cloud company.

Stock Performance amidst Lawsuit

Amazon stock (ticker: AMZN) experienced a marginal 0.1% increase to $126.07 in premarket trading on Wednesday. The stock saw a slight dip of less than 1% after the announcement of the FTC lawsuit, although it had already been trading lower prior to the news.

The restrained reaction from investors at this stage appears to be a reasonable response. There is no guarantee that the FTC will prevail in its case, considering the agency’s recent string of defeats in prominent cases, such as its unsuccessful attempt to block Microsoft’s (MSFT) acquisition of Activision Blizzard (ATVI).

Opportunity for Shareholder Value

Even if the FTC succeeds in winning the lawsuit and implements significant structural changes at Amazon, this could actually unlock value for shareholders.

D.A. Davidson analyst Tom Forte, in a research note, stated, “Based on our sum-of-parts analysis, we believe that shares of Amazon could be worth more, not less, if the outcome leads to the company being divided into separate entities.”

Forte estimated that if Amazon were to be split into three parts – its retail operation, a third-party retail or marketplace platform, and its cloud-computing business – the stock could potentially be valued at as much as $193 or a minimum of $148. The analyst currently holds a Buy rating on Amazon stock with a $150 price target.

Uncertain Path Ahead

FTC Chair Lina Khan refrained from revealing whether the agency would pursue a breakup of Amazon during a briefing with journalists, according to The Wall Street Journal. However, the lawsuit explicitly suggests that the agency could seek “structural relief,” a legal term often used to indicate the possibility of a breakup.

As the legal proceedings unfold, the fate of Amazon remains uncertain. The outcome of this lawsuit could potentially lead to a reshaping of the company, presenting both risks and opportunities for shareholders.

Amazon Faces Antitrust Lawsuit by FTC

The Federal Trade Commission (FTC) has filed a lawsuit alleging that Amazon violated antitrust laws. The FTC claims that the e-commerce giant artificially inflated prices and unfairly locked sellers into its platform. In response, Amazon firmly asserts that the lawsuit is factually and legally incorrect, and vows to contest the allegations.

It is important to note that if the FTC does not pursue the breakup of Amazon, the company may still face a series of other antitrust measures. Cumulatively, these measures could have more severe long-term consequences than a clean breakup at this stage.

Concerns over weak retail profitability have been a major issue for Amazon’s stock in recent years. Since reaching its split-adjusted peak in July 2021, the stock has fallen by 33%. While Amazon has been striving to improve its margins, regulators claim that this effort has resulted in unfair treatment of third-party sellers. Any antitrust measures that impede Amazon’s margin improvement could negatively impact its share value.

Public opinion, as revealed in a survey conducted by market-research firm The Harris Poll, suggests that even if Amazon emerges victorious in the lawsuit, it may only offer temporary relief. The survey, which polled 1,787 Americans in July, indicated that nearly half of U.S. adults believe the FTC should take a more aggressive stance. Additionally, four out of five respondents expressed concern over the excessive power held by large companies.

Will Johnson, CEO of The Harris Poll, states, “Our data show that more antitrust action would be popular among large portions of all generations. Baby boomers, in particular, who have witnessed a more laissez-faire antitrust policy for decades, are most likely to believe that the economy has more monopolies today than 20 years ago.”

If Amazon continues to face heightened scrutiny from a more proactive FTC while grappling with improving retail margins, shareholders may find themselves in a challenging position. In this context, a breakup of the company could potentially be the less painful option.

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