FTC Reportedly Looking to File a Lawsuit Against Amazon Later This Month

US tech giant Amazon (NYSE: AMZN) has faced antitrust probes in multiple jurisdictions and reportedly the Federal Trade Commission (FTC) is looking to file a lawsuit against the ecommerce and cloud giant later this month.

The Wall Street Journal first broke the story and said that according to some people with knowledge of the matter, “the lawsuit will target a number of Amazon’s business practices, such as its Fulfillment by Amazon logistics program and pricing on Amazon.com by third-party sellers.”

It added that the lawsuit would seek that Amazon makes “structural remedies” to its business – which among others could mean a breakup of the company.

The FTC is reportedly looking to sue Amazon

To be sure, Amazon’s business practices especially with regards to data and third-party sellers have long been under scrutiny in the US as well as other regions. Last year, the company settled an antitrust case in the European Union over similar concerns.

As part of the settlement, Amazon proposed to commit “not to use non-public data relating to, or derived from, the independent sellers’ activities on its marketplace, for its retail business.”

Also, to address concerns about its Buy Box, it proposed to commit to “treat all sellers equally when ranking the offers for the purposes of the selection of the Buy Box winner.”

Lina Khan on Amazon

Meanwhile, FTC chair Lina Khan is known for her strict stance against tech giants like Amazon and wrote the Yale Law Journal article titled “Amazon’s Antitrust Paradox” in 2017.

The article said, “In addition to being a retailer, it (Amazon) is a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading provider of cloud server space and computing power.”

It argued that Amazon wields too much power and made a case for breaking up the company.

Meanwhile, the Wall Street Journal reported that on August 15 Amazon’s legal officers had a video call with FTC officials in a so-called “last rites meeting” – which is typically the last chance given to the company to avoid the lawsuit.

The report added that according to Amazon officials, the suggested changes would lead to higher prices and shipping times for its customers.

FTC has also sued AMZN for its Prime plan

Notably, AMZN has been in the crosshairs of FTC for quite some time and earlier this year the regulator sued the company accusing it of enrolling customers for its Prime Plan without their consent while making it tough for them to cancel the plan. Amazon had over 200 million Prime subscribers according to the most recent update and the company raised the annual plan price to $139 in the US last year.

Analysts on AMZN stock

To be sure, Wall Street has been bracing for a potential FTC lawsuit against AMZN and last month DA Davidson which has a buy rating on the stock said in a note, “We believe the walls are closing in on the company when it comes to antitrust/regulation as we consider a Federal Trade Commission (FTC) antitrust lawsuit against Amazon to be imminent.”

Meanwhile, a section of the market believes that a breakup of Amazon might not be that bad an idea as the sum of the parts valuation might be higher than the current valuation with Redburn estimating the AWS cloud business to be worth $3 trillion – or over twice Amazon’s current market cap.

Amazon earnings

Amazon reported revenues of $134.4 billion in the second quarter of 2023 which was 11% higher YoY and ahead of the $131.5 billion that analysts expected. Looking at the business segments, the North America segment posted revenues of $82.5 billion – 11% higher than the corresponding quarter last year.

The International segment’s revenues increased 10% YoY to $29.7 billion while AWS revenues rose 12% over the period to $22.1 billion. Analysts were especially watching the trajectory of AWS revenues as the business – which is nothing short of a cash cow for Amazon – but has been witnessing a gradual fall in revenue growth.

While the downward trend in AWS revenue growth continued in Q2 2023 as well – the business has nonetheless shown signs of stabilization and the revenue came in ahead of the $21.8 billion that analysts expected.

Amazon’s advertising revenues also rose 22% YoY to $10.7 billion while analysts were expecting the metric at $10.4 billion.

Amazon’s Q3 guidance was also strong and the company forecast revenues between $138 billion to $143 billion which implies a YoY growth between 9%-13%. The guidance was ahead of the $138.25 billion that analysts expected.

It forecast an operating income between $5.5 billion-$8.5 billion in the third quarter as compared to $2.5 billion in the third quarter of 2022.

AMZN is also working on AI

The company also talked about the Amazon Business which is its B2B business and said that its gross sales run rate is now $35 billion. It also added that Amazon Pharmacy’s active customers have doubled its active users over the last year.

The company was also quite upbeat about its AI business and said, “Inside Amazon, every one of our teams is working on building generative AI applications that reinvent and enhance their customers’ experience.” That said, regulators globally are contemplating regulating AI and the EU is soon expected to come up with a comprehensive set of rules.

Amazon stock underperformed in both 2021 and 2022 but has rebounded in 2023 amid the broad-based tech rally. The stock nonetheless trades below its 2021 highs and markets would next look for more clarity on the reported FTC lawsuit.