FTC lawsuit impact on AMZN is minimal; stock is a buy candidate at the post-earnings gap level.

Let's focus on the one-year chart for Amazon. The stock is down around 10% since hitting its all-time [music] high on August the 4th. This obviously has [music] to do with some of the new challenges it's facing.

And obviously, we're watching the FTC alongside bipartisan coalition of state attorneys obviously taking aim here. I mean, we're seeing a reaction to the downside for Amazon similar to the reaction we saw yesterday near the close when this information first broke that this lawsuit would be being filed.

We went down about 2% to close yesterday. We're down another 2% already this morning.

The Federal Trade Commission along with 22 states filed suit against Amazon. They say the company engaged in deceptive and unfair practices that secretly inflated prices in its online search advertising auctions.

The complaint says that for a period of more than 7 years, more than 1 million advertisers paid more than they realized they were paying because Amazon raised the minimum price to place ads without them knowing.

As a result, the complaint then alleges that Amazon's scheme has likely extracted tens of billions of dollars from these customers. Amazon sets its advertising prices using an auction system in which companies bid on different types of ads and where they will appear.

But, the lawsuit says that in 2018, Amazon began secretly manipulating its auction results to increase those ad prices and collecting those extra dollars.

In action such as this hidden surcharge and placing those artificial bids, the FTC says that Amazon likely illegally extracted what they're saying is more than $20 billion from 1.2 million customers, almost half of whom were small or medium-sized businesses.

The FTC claims also that these higher costs were eventually then passed on to Amazon shoppers by the businesses. Amazon says it strongly disagrees with what it calls the misguided lawsuit, saying, quote, "The FTC wants the public to believe this is a case about higher prices for consumers.

It is not. Amazon's approach to pricing contradicts any suggestion of consumer harm. We provide customers the lowest prices every day across the widest selection of products."

They also go on to say that at Amazon, customers saved an over $230 a year on average last year. They also say that the FTC's claim fundamentally misunderstands how advertisers operate.

They say advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.

Even accepting the FTC's flawed premise that advertisers do not adjust bids, we estimate they saved more than $8 billion between 2021 and 2025 as a result of Amazon prioritizing ad relevancy over selecting ads on bid price alone.

Amazon continues to go on saying that it has shared its data with the FTC on multiple occasions and says, quote, "The FTC has shown little interest in engaging with the facts and appear more focused on trying to secure some sort of monetary victory."

The company also said that the chart it costs it charged for digital ads remains flat when they were adjusted for inflation even as conversion rates grew.

Amazon seems to be coming out of the gate pretty strong here that they haven't had any wrongdoing. It will remain to be seen whether or not they will settle without wrongdoing to remove the uncertainty here because as we've seen with meta that legal uncertainty can certainly have a negative impact on your share price.

I mean, obviously we know this has just been filed. We've seen Amazon pushing back.

Yeah, and as you alluded to, Sam, it could be a big deal for the smaller customers certainly that Amazon uh was supposedly kind of inflating the revenues on. We shall see on that.

But for Amazon itself, the overall effect I think will be minimal especially given the pullback we've already seen in the stock here. The dollar amount for Amazon won't be that great.

Certainly there'll be an overhang in the stock here, but I think overall given the fact the stock's come down hard over the past couple days and now hard off the highs here. I kind of like attacking that gap from the last earnings report where they had a very nice beat to be a buyer if it drops down there again.

So I'm just going out to the traditional October options selling the 230 put buying the 225 collecting about 80 cents net credit or so on the trade. I like that kind of return on risk of about 20%.

I also have additional you know about 10% cushion on the stock price from where it's at now till I get in trouble on that following an over 10% drop from the high. So that would put it in confirmed bare territory.

So I think overall Amazon will probably have to muddle through this over the next several weeks or months, but in the big picture realm of things, I think this will be a maybe a mere flesh wound for Amazon.