The FTC may call for a breakup of Amazon. Why investors should celebrate

It looks like Amazon is about to be hit with an antitrust lawsuit from the Federal Trade Commission. This is not necessarily bad news for shareholders.

Amazon (ticker: AMZN) has made no concessions to the Federal Trade Commission in what could be final talks before filing a lawsuit against the online retailer, The Wall Street Journal reported. mentioned, citing people familiar with the matter. The lawsuit likely proposes actions that could lead to the breakup of the company, according to the Wall Street Journal.

Amazon declined to comment on the report.

Shareholders should not worry too much, and may even celebrate the news. That’s according to analysts at DA Davidson, who calculate that if Amazon splits, it could be worth between $148 and $193 per share.

The calculation was based on a scenario in which Amazon is divided into three parts: its retail operation, its third-party retail or marketplace platform, and its cloud computing business. Analysts, led by Tom Forte, argued that that might be better than keeping Amazon in its current form as it will increasingly struggle to achieve a compound annual growth rate of 10% to 20% to maintain its premium valuation.

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Other analysts estimated Amazon’s valuation at about $200 per share in a breakup scenario.

Amazon shares fell 0.7% to $136.38 on Wednesday.

It’s not the first time Amazon’s breakup has been discussed – Baron I wrote about this possibility in 2018. However, a lawsuit filed by the FTC could focus investors’ minds on what could happen if Amazon is forced to make this move rather than having it make its own choice.

If the FTC goes ahead with a lawsuit, it will be a litmus test for the FTC under Chairman Lina Khan, who first rose to prominence after writing a law review article as a student at Yale Law School that argued that the antitrust law failed to fight monopolies. . Curb Amazon.

However, under Khan, the FTC has suffered a series of legal defeats in antitrust cases, including its recent loss in an attempt to block Microsoft.

(MSFT) $69 billion deal to buy Activision Blizzard (ATVI). Amazon has previously requested that Khan recuse himself from investigations related to the company.

Breaking up will not be a simple task. DA Davidson’s Forte suggested the period of distraction could last more than a decade, based on the company’s previous complex breakups. However, he noted that shares of Google’s Alphabet (GOOGL) and Facebook’s Meta Platforms (META) have done well while being sued by the government on antitrust charges.

Write to Adam Clark at [email protected]

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