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More Antitrust Concerns for Amazon (AMZN) Investors?

More Antitrust Concerns for Amazon (AMZN) Investors?
Written by publishing team, Inc. (AMZN) added more regulatory scrutiny recently with the filing of a revised antitrust lawsuit against the powerful tech company this week in Washington, DC.

If that sounds familiar, it’s because the original lawsuit was filed in May 2021. That lawsuit focused on the monopoly power obtained through pricing contracts with third-party sellers (those who sell products on Amazon). The latest amendment expands the scope to include wholesalers, or first-party sellers (those who sell to Amazon, which then sells products on its platform).

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  • Investors may be interested in Amazon’s recent antitrust check.
  • Whatever happens, Amazon shareholders stand a good chance of seeing positive results.
  • Big money investors still love Amazon stock.

It is claimed that since first-party seller contracts force wholesalers to make up the bottom line if they don’t meet the quota, this artificially raises prices outside of Amazon. In my opinion, if Amazon enforces it, someone else will come along and undermine the company.

It’s simple – if you don’t meet the quotas, you’re not selling enough product. Therefore, things will be priced to move (ie lower). In turn, you raise prices when you can’t keep up with demand, not when you’re falling short.

Thus, I personally don’t think the argument against Amazon involves much seriousness. It really does seem like attention-grabbing situations without the legal teeth behind it, but I’m not a lawyer. And while it wasn’t surprising, an Amazon spokesperson agreed and said a lot in the article linked above, noting that pricing is set by sellers, not the platform.

Now, this kind of news worries some investors. They worry that Amazon could be penalized or forced to break up. But as I have written before, even if a company suffers from either of these two Egyptians, the company(s) that resulted can continue to thrive.

Let’s say the worst – Amazon is broken up into smaller companies – eg online retail, cloud services (Amazon Web Services), transportation (Flexible and Trucking), and media (Prime Video and MGM). I think all of these could become huge business.

You mentioned that there is precedent for this where Standard Oil has become 30 different companies, including Exxon (XOM), BP (BP), and Chevron (CVX). While the date is not a guarantee, I’ve seen something similar happen if Amazon is disassembled.

Big money investors seem to agree. I follow big money activity (i.e. institutional investors who move the markets), and look for buy and sell signals that produce choppy stocks. Big Money has been all over Amazon for years.

In fact, there have been 24 cases of big buys in stocks since 2017. Below is a graph showing some of them:

Amazon is what I call outgoing stock… It’s one of the best stocks ever. I expect the stock to break higher in the coming years.

Therefore, even if the company were to be split up, there is no reason to believe that the huge money would not be attracted to the various companies that resulted. In addition, if both those Companies become dividend-paying stocks, investors can benefit more than if Amazon stayed together.

Nobody knows the future, so there is no telling how this could happen. But taking into account some of the possibilities above, we can maintain perspective and realize that there is still more to like about Amazon than to hate, even with an anti-corrosion threat looming.

bottom line

Successful large companies attract antitrust regulators. But even when companies split, many successful companies can emerge. Big money doesn’t care much because Amazon—whether it is as is, restricted, or broken down into smaller pieces—still has attractive fundamentals and growth potential.

Disclosure: At the time of publication, the author held a long position at BP but no position at AMZN, XOM, or CVX.

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