Amazon (AMZN) is facing an antitrust lawsuit from the Federal Trade Commission and 17 states, alleging the e-commerce platform abused its monopoly power by unfairly promoting itself at the expense of third-party retailers who rely on the platform for distribution. It has prompted some questions about whether the suit could results in a break up of the tech giant.
D.A. Davidson Managing Director and Senior Research Analyst Tom Forte joins Yahoo Finance to break down impacts of the lawsuit for both the company and for investors. Forte points out how advantageous a potential separation of the company would be. "You could make an argument that the some of the parts are worth more than the whole, if it was broke into a marketplace, a first-party e-commerce company, and cloud computing company, there could be an upside for share holders," Forte explains. Amazon's stock dipped on the news it was being sued. Forte says it is a buying opportunity, citing how Alphabet's (GOOG, GOOGL) stock has traded since it was sued.
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SEANA SMITH: Do you think that this could, potentially, result in a breakup? And what does that then mean for Amazon?
TOM FORTE: So to me, the guaranteed is that this is going to be multiple years of distraction for the company. When you look at other antitrust lawsuits, IBM, AT&T, in some instances, those lasted more than a decade. The good news is that we see Amazon as having the ability to navigate the distraction as evidenced by how it handled the debate over online sales tax that was ultimately decided by the Supreme Court.
Do I think it's going to end up in a breakup of the company? At this point in time, no. From a stock standpoint, though, I think the good news for investors is, you can make an argument that the sum of the parts are worth more than the whole. If it was broken into a marketplace, a first-party e-commerce company, and cloud-computing company, there actually could be upside for shareholders.
BRAD SMITH: Is that what shareholders want? Do they want Amazon broken up, Tom?
TOM FORTE: Some shareholders may want that as a way to unlock the value of the cloud-computing business. But I think generally speaking, what shareholders want is for the company to continue to do what it does well, which is find opportunities to serve the end user, either the customer or the business.
I think the challenge for the government as it pertains to the antitrust case here is how are they going to convince a judge that Amazon's doing ultimate harm to a consumer. You can argue that maybe they're doing harm to some of the sellers on their platform. But generally speaking, Amazon's trying to lower prices to consumer, give consumer the opportunity to buy more merchandise. I think, that's going to be a tough hurdle for the government.
SEANA SMITH: So Tom, we're looking at the stock yesterday, at least closing off about 4% on the heels of this news. What should investors then do? If we're not too worried, maybe, about what this could potentially mean for Amazon, should they be using pullbacks like yesterday to buy?
TOM FORTE: They should. And then, by a other way of comparison, Google's stock is materially outperformed since they were first sued. They're currently engaged in a court battle right now. Meta Platforms, for the most part, has performed in line with the NASDAQ since they were sued for antitrust. So other reasons why investors could feel confident about taking advantage of a pullback on an important situation, but one that may not be as negative for the stock as the headline would suggest.