FTC lawsuit poses no long-term threat; stock weakness is a buying opportunity.

In today's video, we will discuss the new lawsuit filed by the Federal Trade Commission ( FTC) against Amazon, specifically regarding their advertising platform, where the commission is seeking compensation of up to $20 billion.

Here you can see all the holdings within QMVP, most notably Microsoft, Apple, Amazon, Broadcom, Nvidia, Google, and Meta. Okay, let's now delve into the video and start talking about the Federal Trade Commission's ( FTC) lawsuit against Amazon, what the reasons for this lawsuit are, what mistakes the commission claims Amazon made, in addition to Amazon's response that it published on its website .

This slide discusses what the Federal Trade Commission says and the reasons that led it to pursue legal action against Amazon. The first point is " secret pricing abuses," where Amazon secretly substitutes a higher price to be able to charge higher fees and make more profit from advertising.

The committee also alleges that Amazon told advertisers it was running a " second price" auction when it had stopped doing so. The next point is " concealment and cover-up," where the committee indicates that Amazon was raising advertising prices and claiming that this was due to demand and not the result of manipulation.

The commission alleged that Amazon was exploiting " Prime Days" and holidays to hide the largest increases in advertising prices it was making, again to increase its advertising revenue.

The Federal Trade Commission estimates that $20 billion in additional fees were levied on more than 1.2 million different companies. The committee also claims that these costs were passed on to consumers who ended up paying higher prices for their goods.

In short, the Federal Trade Commission also says that consumers have been harmed by having to pay higher prices on the Amazon platform.

The last point, which seems to be the most important in the committee's case, is that Amazon manipulated its advertising auction, acting as both " auction organizer" and "bidder" to drive up bidding prices and make more money.

Essentially, Amazon was seeing who had the highest bid, then trying to outbid them to keep raising the price and generating as much revenue and profit as possible on its advertising platform.

Now, let's move on to the next slide, which is Amazon's responses to these key claims. The first response was that there was no harm done to shoppers and consumers. As the committee itself states, there is no evidence that consumer prices have risen due to increased advertising costs.

Therefore , this point seems to be largely irrelevant.

Amazon then said that winning bids decreased because it applied a greater focus to the "relevance" of the ad. It's not just about showing ads to the advertiser with the highest bid , but about showing ads based on what the consumer is actually looking for.

Again, the winning advertiser or the winning offer is not always the one that is shown to the consumer.

Amazon also points out that buyers adjust their bids based on the results, not on Amazon's rules. So, if advertisers are not getting a return on investment from their bids, they are monitoring that in real time.

They don't spend a million dollars on an Amazon advertising platform and then leave it to run on its own , do they ? There is a team of people who monitor every day to ensure that their bids are effective, that they are generating a return on investment, and they change their bids as they see fit.

That's what advertisers do, isn't it? Therefore, the claim that buyers were surprised and did not know what was happening seems somewhat false . Or at least that's what Amazon says, because they've been monitoring the situation.

They should monitor daily, and they should be satisfied with the prices they pay, since ultimately they are the ones who set their own prices.

Amazon also says that it has not harmed advertisers because ad prices have not risen above the inflation rate for years, while ad conversions have continued to improve steadily.

Essentially, Amazon says that the cost of conversion for advertisers has actually been steadily decreasing .

Amazon says it also runs a standard auction that is typical across the industry. They do nothing that their competitors don't do. Finally, Amazon claims that the Federal Trade Commission carefully selects a small number of emails that appear malicious.

Out of 1.5 million pages they reviewed. So, in the overall context of things, there may be some messages that seem harmful, but overall they are a very small part and are mainly taken out of context.

So let's now move on to the next slide which talks about the possible outcomes here. The first point here is that the Federal Trade Commission says it is seeking tens of billions of dollars in damages.

There are also 22 state attorneys general who have joined the case and are seeking the same damages. However, a settlement in the range of $2.5 billion to $5 billion is likely based on the Federal Trade Commission's historical claims and settlements made by Amazon.

I mean, as we talked about in previous videos, Amazon was facing a lawsuit for up to 1.4 trillion in fees and fines. They ended up settling for approximately $12.7 billion to be paid over the next decade.

Therefore, these numbers in the headlines are intended to incite fear. It tends to be exaggerated. What actually happens in the final settlement date is usually not that dramatic.

However, in my view , the biggest cost will be Amazon having to change its advertising algorithms and bidding strategies, which could ultimately hurt prices, revenue, and profit margins .

Now let's move on to the fourth and final slide, which is a summary and explanation of why I continued to buy Amazon shares, as they were one of the best stocks I bought in the market during the past two months.

My first point here is that fines and settlements are not the real danger for Amazon. Amazon could easily withstand fines amounting to tens of billions of dollars. I mean, it's a company that generates over $150 billion in annual operating cash flow and is growing tremendously.

Therefore, even if there is a settlement or fine in the tens of billions of dollars range, it will not hinder Amazon's long-term progress. It will be annoying, but they will get through it and business will be fine.

As I said recently, I think the real danger lies in the need for algorithms and advertising businesses to make changes. Advertising is a huge, fast-growing, and extremely profitable business for Amazon.

But in my opinion, even if Amazon is forced to make some changes , I imagine it will still have a very profitable and highly sought-after advertising business. Amazon has plenty of traffic and enough resources to find solutions to these challenges.

I don't believe their advertising activity will be significantly hampered in the long term by any potential changes they may have to make.

I mean, think about it. If sellers weren't happy with Amazon's advertising activity , they wouldn't have spent so much money on it and it wouldn't have grown so fast. Therefore, it is clear that advertisers are seeing a positive return on investment and are spending more and more money on the Amazon advertising platform.

For me, any weakness in Amazon's stock is ultimately a long-term buying opportunity . As I said, I've been buying more Amazon shares on the market, especially since this lawsuit caused the stock to decline slightly.

I recently made a video on my channel entirely dedicated to my thesis on Amazon and why I believe it is one of the clearest buying opportunities in the market right now. So, if you would like to see my complete investment thesis with discounted cash flow (DCF) analysis, I recommend watching that video as well.

Overall, I don't think this changes the thesis about Amazon or its long-standing fundamentals. So, if the stock wants to pull back in the short term, I look at that again as a long-term buying opportunity, and that's exactly what I've been doing.

As you know, if you are a regular follower of my channel, I follow up with all advertising companies after each quarterly report. I track advertising revenue for Google, Meta, and Amazon to see trends, how fast they are growing, and which company is adding the most advertising revenue.

Ultimately, I think Meta is doing a great job of continuing to attract advertising money, and for a while now, it has been the fastest growing and most attractive advertising money provider compared to Amazon and Google.

companies like AWS and Google Cloud will face challenges because they provide the tokens, they provide the computing power. So, if computing is cheaper, those companies won't make as much money, and that's true on a per-token basis,

I also believe that this is the scenario in which large cloud computing companies like AWS can generate the most revenue and profits in the long term.