No Doomsday scenario for Facebook as EU privacy rules kick in

  • TECH
  • Friday, 27 Apr 2018

Figurines are seen in front of the Facebook logo in this illustration taken March 20, 2018. REUTERS/Dado Ruvic

FRANKFURT: As Europe nears tough new privacy rules, Facebook reckons the worst that could happen is that users will share less data, making it harder to target ads on the social network that raked in revenues of US$12bil (RM47.04bil) in the first quarter.

That's despite the furore sparked by its admission that the personal data of 87 million of its users was passed to a company, Cambridge Analytica, that advised US President Donald Trump's election campaign.

CEO Mark Zuckerberg was grilled for two days by US lawmakers over the leak, yet he and his management team weren't even asked by analysts about a possible clampdown by regulators after Facebook reported a 49% jump in first-quarter revenues.

“I don't know that we really see a Doomsday scenario here,” chief financial officer David Wehner said when asked about the worst possible outcome of the new privacy regime. There could be minor limitations to data usage that might have an impact on targeting for Facebook's advertisers, Wehner added.

Facebook, like other consumer tech companies, has overhauled its terms of service to bring them into line with the European Union's General Data Protection Regulation (GDPR). The rules require requests to gather data to be made in easily understood language, and give users greater rights over that information.

Crucially, the social network has said it won't let users opt out of targeted ads that account for most of its revenues. They will be able to limit the amount of data gathered, however, creating the potential for marginal attrition of revenues.

“The biggest risk facing Facebook is that changes from GDPR-type regulations will limit the targeting capabilities of advertisers and thus the willingness to keep spending,” said analyst Michael Nathanson of Moffett Nathanson Research.

There was no evidence that Facebook would be affected more than its digital competitors, he added in a research note: “It is probable that Facebook emerges comparatively stronger in this new world.”

Investors seemed to agree, sending Facebook shares 9% higher as the stock market opened on Thursday.

Doing enough?

Analysts – both bullish and bearish – reckon Facebook is doing enough to avoid the wrath of European regulators who, when GDPR takes effect on May 25, will gain the power to fine it up to 4% of annual revenues for serious privacy violations.

“We think Facebook are being sincere with GDPR,” said Christopher Rossbach, chief investment officer at J. Stern & Co, who continues to rate Facebook as one of the best investments in the market today.

Facebook had made significant investments into security, safety and privacy on its platform that would, over time, increase the confidence of users and make it more enjoyable to use, he said.

Independent analyst Richard Windsor, despite being bearish, also doubts Facebook has much to fear from the GDPR regulator – Ireland's Data Protection Commissioner (DPC) will be responsible for overseeing Facebook because its main EU office is in Dublin.

The Irish DPC's annual budget for this year, of €11.7mil (RM55.54mil), pales in comparison with Facebook's earnings of US$4.99bil (RM19.56bil) in the first quarter.

Windsor, who writes the Radio Free Mobile blog, expected concerns arising from the Cambridge Analytica case to be resolved without direct intervention.

“What Facebook may end up proposing is for users to pay for (using) it - with their personal data or in cash,” he told Reuters. “When this is cleared up the problem goes away.” — Reuters

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