Amazon Sued Over Ad Prices, Shein's IPO Falls Flat

Zaid Admani (0:00)

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Tuesday, September 1st. In today's episode, we'll break down why September could get a lot more volatile for stocks with oil and bond yields both moving higher. We'll also tell you why the FTC is suing Amazon over its advertising business, and why Shein's long-awaited IPO was such a disappointment. Then stick around to the end of the show to find out why one of the biggest YouTubers in the world just became GoPro's largest shareholder. We got a great show for you today.

Let's go.

Stocks ended the month of August on a down note. The S&P 500 fell 0.3% on Monday while the NASDAQ dipped just 0.1%. Overall, though, when you zoom out, August was a great month for the stock market. The S&P gained 2.6%, while the NASDAQ added 3.9%, both indices having their best August since 2021 Now we're officially in the month of September, and historically, September has been the worst month for the stock market. Going all the way back to 1928, the S&P has averaged a 1.1% decline for the month of September. And you know, there's a lot of uncertainty this year heading into this month. On one hand, you have corporate America continuing to crush it. Q2 earnings season was strong. Revenues for the S&P 500 were up nearly 16%.

And earnings per share were up 53% from a year ago. Now, to be fair, some of that growth did come from investment gains in AI companies at Amazon and Google, plus tariff refunds flowing through retailers like Walmart, Target and Apple. But even setting aside those investment gains, profit growth was still the strongest since 2021 And companies are raising guidance left and right. So despite all the concerns about the economy, consumers are still spending, and corporate earnings are holding up really well. But then on the other hand, the macro picture is still pretty messy. The oil prices are still elevated and jumping again right now after renewed fighting between the US and Iran around the Strait of Hormuz. And then you have the bond market chaos, bond yields are surging everywhere in the world. The US 10-year treasury yield is around 4.79%. It's highest level in about 20 months. And yields in Japan and the UK have also hit multi-decade highs. And then you add in what could happen with the Fed and interest rates. Fed Chair Kevin Warsh was pretty hawkish in his Jackson Hole speech on Friday, and traders are now pricing in a roughly 66% chance that the Fed will hike interest rates at the September meeting. So given that backdrop, September is shaping up to be a very interesting month. I think we're gonna see more volatility, especially now that Wall Street is coming back from summer vacation. So personally, I'm looking forward to having more things to talk about this month. We're gonna stay on top of all of it, so definitely get subscribed to the podcast and tune in every day to stay in the loop.

Let's run through some headlines. Starting with Amazon. The FTC and 22 states are suing Amazon and accusing the company of secretly manipulating their advertising auctions to charge businesses more money. All of this gets a little wonky, so let me try to explain what allegedly is happening. See right now, when you search for something on Amazon, a lot of the products at the top of the search results are ads. Sellers bid against one another for those top search results, and Amazon historically has used what's called a second price auction to determine who's gonna get the top spots. So let's say I bid $10 for an ad to show up every time someone searches for a water bottle, and some other seller bids $8 for an ad. I would win that auction, but instead of paying the $10, I would basically pay one penny more than the second highest bidder, so in this example, it would be $8.01. The system is designed this way to prevent bidding wars from happening and giving merchants confidence that they won't overpay for an ad. Well, according to the FTC, Amazon secretly changed the system back in 2018 and introduced something internally called Soft Reserve. Basically, Amazon could insert a higher minimum price after seeing the bids, which pushed up what the winners had to pay. According to the complaint by the FTC, Amazon did this for 70% to 80% of the auctions in recent years, and they increased the pay-per-click ad prices by as much as 50% during peak shopping seasons. And according to the FTC, these moves by Amazon caused $20 billion in harm to advertisers. And the argument here by the FTC is that higher advertising costs don't just hurt the sellers. Sellers will eventually pass those costs on to shoppers through higher prices. Now, Amazon for their part is pushing back hard. The company called the lawsuit misguided. They said the FTC fundamentally misunderstands how digital advertising operates. Amazon says their system sets real time minimum values based on ad relevancy, and that sellers never pay more than their maximum bid. In fact, Amazon goes on to say that their pricing models actually saved advertisers $8 billion over four years. So we'll see how this all plays out. I mean, is this kind of a big deal because advertising has become a monster business for Amazon? Amazon made $68 billion from ads last year, making it the third largest digital advertising platform in the world behind Google and Meta. The market doesn't seem to be too concerned about this lawsuit. Amazon stock fell more than 2% yesterday, and it's down another 2% this morning. I think regardless of how this lawsuit plays out, I don't think sellers will pull back on ad spending on Amazon anytime soon. That being said, I mean, I personally find it very annoying that like the first five to six results on Amazon are now ads at this point. But again, I don't think that's going to be changing anytime soon.