The FTC may call for Amazon to be broken up. Why investors should celebrate
It looks like Amazon is about to be hit with an antitrust lawsuit from the Federal Trade Commission. This isn’t necessarily bad news for shareholders.
The Wall Street Journal reported, citing people familiar with the matter, that Amazon (trading ticker: AMZN) has made no concessions to the Federal Trade Commission in what could be the final talks before suing the online retailer. The lawsuit is likely to suggest 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 calculated that if Amazon splits, it could be worth between $148 and $193 a share.
The calculation was based on a scenario where Amazon is divided into three parts: its retail operation, its third-party retail platform or marketplace, and its cloud computing business. Analysts, led by Tom Forte, argued that might be better than keeping Amazon in its current shape as it will increasingly struggle to achieve a compound annual growth rate of 10% to 20% to maintain its stellar valuation.
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Other analysts have estimated Amazon’s valuation at about $200 per share in the breakup scenario.
Amazon shares fell 0.7% to $136.38 on Wednesday.
It’s not the first time Amazon’s breakup has been discussed. Barron I wrote about this possibility in 2018. However, the lawsuit from the Federal Trade Commission (FTC) could focus investors’ minds on what would happen if Amazon was forced to make this move rather than it being a choice of its own.
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If the FTC proceeds with a lawsuit, it will be a critical test for the commission under chairman Lena Khan, who first rose to prominence after writing a law review article while a Yale Law School student arguing that antitrust law had failed to rein in Amazon.
However, the Federal Trade Commission under Khan has suffered a string of legal defeats in antitrust cases, including its recent loss in an effort to block Microsoft.
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(MSFT) $69 billion deal to buy Activision Blizzard (ATVI). Amazon has previously requested that Khan recuse himself from investigations into the company.
Separation will not be a simple task. DA Davidson’s Forte suggested the distraction could last for more than a decade, based on the company’s past complex break-ups. However, he noted that shares of Google subsidiary Alphabet (GOOGL) and Facebook owner Meta Platforms (META) have performed well while being sued by the government for antitrust charges.
Write to Adam Clark at adam.clark@barrons.com
