As if struggling Meta Platforms (NASDAQ:META) needed more bad news, the technology giant is suffering another significant blow. This time, European Union regulators are imposing a $414 million fine on the company. At the heart of the issue stands E.U. laws regarding user data collection, which Meta allegedly violated. Yet, although the issue creates significant challenges for the company, META stock is barely budging on Thursday.
According to Business Insider, the $414 million penalty stems from two fines for platforms that Meta owns: one for Facebook and one for Instagram. Ireland’s Data Protection Commission (DPC) initiated the complaint, arguing that Meta violated Europe’s General Data Protection Regulation (GDPR) laws. Previously, Irish authorities hit the tech juggernaut in September with a $403 million fine. Back then, the concern centered around Meta’s failure to protect children’s privacy.
Per The New York Times, this latest case hinges on how Meta receives permission from users regarding data collection for advertising. The outlet notes:
“The company’s terms-of-service agreement […] includes language that effectively means users must either allow their data to be used for personalized ads or stop using Meta’s social media services altogether.”
Now, Meta has three months to “outline how it will comply with the ruling.”
META Stock Banks on a Hopeful Rebuttal
On the other end of the aisle, Meta asserts that it did not violate GDPR privacy laws. Based on a report from the BBC, the tech firm’s representatives argue that Facebook and Instagram represent “inherently personalised” platforms, making targeted ads a “necessary and essential part” of how the platforms work.
Further, the reps say that Meta did not give users an “ultimatum.” However, Irish authorities disagree, arguing that users have no choice but to consent.
Still, another angle stems from disagreements within the E.U. on how to enforce the GDPR. Per the NYT, Ireland’s DPC arrived at the accusatory conclusion against Meta following some discussion and disagreement among data authorities. Meta responded in a statement:
“There has been a lack of regulatory clarity on this issue, and the debate among regulators and policymakers around which legal basis is most appropriate in a given situation has been ongoing for some time.”
Still, the broader concern for META stock and its ilk focuses most on E.U. anti-Big Tech initiatives. Last year, European regulators also passed new laws aimed at preventing anti-competitive practices in the tech sector.
Why It Matters
Bluntly speaking, META stock faces significant viability questions amid many macro pressures. This latest drama only underscores the steep hurdles ahead. Wedbush analyst Dan Ives believes that the judgment is a “major gut punch” that puts 5% to 7% of the company’s overall advertising revenue at risk.
Should European users opt out of data collection, Meta could lose relevance. Marketers depend on targeted ads so that conversion rates ping at higher levels. Naturally, this framework would put META stock under the gun.
On top of that, the scale of digital advertising dependency may give investors pause. In the third quarter of 2022, Meta reported revenue of $27.7 billion. According to Investopedia, approximately 98% of that revenue was derived from advertising.
To pour more salt on the wound, ad spend declined throughout last year. Combined with poor consumer sentiment, Meta Platforms management stands in front of possibly its biggest crisis. How the company responds may play a decisive role in the trajectory of META stock in 2023.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
