A ruling from the highest court in the European Union just unleashed some biblical uncertainty upon Silicon Valley, and there’s hardly a single major tech company immune from its implications.
Facebook Inc. (FB), Apple Inc. (AAPL), Microsoft Corporation (MSFT), and Alphabet Inc. (GOOG, GOOGL) all stand to be some of the most affected parties in the ruling, which puts practical constraints on companies sharing data about European individuals with U.S. servers.
In a global economy, that data bottleneck could be extremely costly, as it may prevent the above companies — and as many as 4,500 more — from monetizing that data through advertisements and other means.
Of the four aforementioned giants, none is doing great Tuesday. FB stock is off more than 1%, or what amounts to a $2 billion haircut to its market cap.
Alas, the worst part of this ruling for FB, AAPL and their tech peers is that:
This Has Never Happened Before
European courts ruled that the “Safe Harbor” pact, a transatlantic data-sharing agreement that originated in 2000, could be overturned by European regulators because the privacy of Europeans’ data was by no means ensured once it became stored in U.S. data centers.
The ruling comes as a result of a case brought by Austrian law student and privacy activist Max Schrems against Facebook, which he alleges hands over customer information to U.S. spies.
In light of former NSA contractor Edward Snowden’s leaks showing mass data collection and surveillance, Europe is understandably protective.
For FB and its peers, this essentially comes down to its digital advertising operations, an industry that was still in its infancy in 2000. The ruling forces American companies to instantly — at the snap of a finger — adopt more conservative data-sharing strategies or risk being investigated and punished by European regulators.
At this point in time, the implications are murky, but cloud computing companies that store data for international clients could also be affected by the ruling. That’s a huge industry, with players like Amazon (AMZN), IBM (IBM), Oracle (ORCL) and others.
Despite the flagging euro and uncertainty in the Eurozone, the continent remains a vital part of most Silicon Valley businesses. Facebook, for example, has more monthly active users in Europe (311 million) than in the U.S. and Canada (213 million).
Perhaps more importantly, Europe’s relative affluence in comparison to emerging markets means that each individual user is worth more than the average user in developing countries. Last quarter, FB commanded an average revenue per user in Europe of $3.36, far higher than the Asia-Pacific ($1.29) and “Rest of World” ($0.90) segments.
Will that figure come down in subsequent quarters due to today’s ruling? That remains to be seen, and it depends largely on Facebook’s risk tolerance, interpretation of EU regulations and whether a new “Safe Harbor” agreement can be reached.
Bottom Line
Despite all this uncertainty, one thing is clear: It’s no longer safe to play fast and loose with Europeans’ data.
That’s only cool in the U.S.
As of this writing, John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
