Amazon (AMZN) embroiled in $20 billion advertising lawsuit controversy... Citi: "Now is the right time to buy"

▲ Amazon (AMZN), Artificial Intelligence (AI)/AI-generated image

Amazon (Amazon, AMZN) has been embroiled in a $20 billion advertising lawsuit. However, Citi viewed it as a buying opportunity.

According to StockTwits on September 1 (local time), Citi maintained its 'buy' rating and a price target of $350 for Amazon. This implies a potential upside of over 37% from Monday's closing price. Although the U.S. Federal Trade Commission (FTC) filed a lawsuit challenging Amazon's ad auction methods, Citi assessed the short-term stock price decline as a buying opportunity.

The FTC alleged that Amazon overcharged advertisers by approximately $20 billion. It also raised suspicions that Amazon artificially inflated prices during the ad auction process. In the wake of the lawsuit, Amazon's stock price fell by 2.5% on Monday and slid another 0.8% before the market opened on Tuesday. Retail investor sentiment on StockTwits remained in a bearish zone for the past week.

Citi placed more emphasis on the fundamental strength of Amazon's advertising business than on the legal dispute. It cited as evidence that advertisers are allocating more budget to the Amazon platform after confirming actual performance. The accelerating demand for artificial intelligence (AI) in Amazon Web Services (AWS) was also positively assessed. Citi believes that the expansion of AI-related demand will support AWS growth and Amazon's overall earnings outlook.

Amazon directly refuted the FTC's claims. The company characterized the lawsuit as “misguided” and stated that it “strongly disagrees” with the allegations. It also drew a line against the claim that consumers paid higher prices. Amazon stated, “The FTC is trying to lead people to believe this case is about consumer price increases, but that is not true.” It also explained that customers saved an average of over $230 per person last year through discounts, coupons, and subscription programs.

Meanwhile, Amazon's stock price has risen over 12% this year, with a gain of approximately 16% over the past 12 months. Although the FTC lawsuit emerged as a short-term concern, Citi maintained its existing optimism, citing the growth of the advertising business and AI demand in AWS. It also kept its price target of $350 unchanged.

[Article Key Summary]

- The FTC alleged that Amazon manipulated ad auctions and overcharged advertisers by approximately $20 billion.

- Citi viewed the stock price decline due to the lawsuit as a buying opportunity and maintained its 'buy' rating and a price target of $350.

- Citi cited increased advertiser spending and expanding AI demand in AWS as key growth drivers for Amazon.

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