Amazon.com (AMZN) won a proposed class action lawsuit that alleged the e-commerce retailer willfully mislead investors about its treatment of third-party sellers and capacity expansion plans. Amazon was accused of using unfair techniques to lower the prices of its private-label products compared to those of outside merchandise, resulting in higher prices for consumers overall.
The class action lawsuit covered shareholders who bought AMZN stock between February 1, 2019, and April 28, 2022. U.S. District Judge John Chun dismissed the lawsuit with prejudice, meaning the proposed class action cannot be refiled. The lawsuit also led to an antitrust probe by the Federal Trade Commission (FTC) into Amazon in 2023, which is set for a non-jury trial hearing in October 2026.
Amazon Defeats Class Action Lawsuit
Shareholders accused amazon of using an algorithm to keep its private-label products cheaper than third-party sellers’ products. Moreover, shareholders alleged that Amazon and the defendants, including former CEO Jeff Bezos and current CEO Andy Jassy, secretly planned to expand the capacity of Amazon’s fulfilment centers in 2022. As a result, in April 2022, the retail giant reported $2 billion in costs for excess capacity expansion and recorded its first ever quarterly loss since 2015. This led to a sharp decline in AMZN’s stock price, causing massive damage to shareholder returns.
However, the judge ruled that he found no compelling evidence suggesting that the defendants knew and/or covered up any of the allegations. Judge Chun also noted that there was insufficient evidence to prove the defendants wilfully defrauded shareholders by “making Amazon seem as successful as possible,” to increase their pay package and boost the stock price. In fact, the judge ruled that Amazon and the defendants tried their best to improve the company’s performance and focused on “increasing the corporate profits.”
Insights from Amazon’s Risk Analysis Tool
According to the risks detailed in Amazon’s Q4 Fiscal 2024 annual report, the e-commerce retailer is at maximum risk from two aspects: Finance & Corporate risks and Legal & Regulatory risks. In fact, Amazon’s Legal & Regulatory risks are significantly higher at 25%, as compared to the Sector Average of 17.8%. Studying a company’s risk profile can give investors thorough insights into the possible risks and take an informed investment decision.
Is AMZN a Buy Right Now?
Wall Street remains highly optimistic about Amazon’s stock trajectory. On TipRanks, AMZN stock commands a Strong Buy consensus rating based on 46 Buys versus one Hold rating. Also, the average Amazon.com price target of $270.33 implies 38.1% upside potential from current levels. In the past year, AMZN stock has gained 12.2%.
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