Meta May Be Fined, See Its Data Collection Policies Upended by European Regulators

The Wall Street Journal has reported that Meta Platforms could be held accountable for not complying with the General Data Protection Regulation, the European privacy rules that went into effect in 2018. The European Data Protection Board confirmed that it has reached a decision but will not disclose it for at least a month. While Meta is likely to appeal in what the Journal points out will probably be a lengthy process, we think the firm could ultimately be liable for up to $13 billion in fines (around 4% of revenue since the rules went into effect) or up to 2% of our $260 fair value estimate.

More importantly, such a decision could permanently reduce prices for ads on Meta’s properties, and advertisers could prioritize contextual ads over the targeted ads that Meta is known for. If we assume ad inventory remains static but global ad prices are 10%-20% lower than we currently expect, our valuation would decline 12%-25%. We believe a reduction of that size is a worst case and there are enough unknowns and contingencies at Meta’s disposal to stick with our current estimates. We view the shares as attractive regardless of the GDPR outcome.

If the decision is upheld, it could set a precedent that affects other platform providers. The impact (including the fine and long-term effect on revenue growth using similar assumptions) on Snap and Pinterest could reduce our fair value estimates by 20%-40% and 12%-25%, respectively.

While the GDPR requires user consent to use data such as online behavior for targeted advertising, if the data is considered a necessity for the service in question, the user only must be offered the option to agree to terms or not access the site or app. Meta has been defining user behavior data as such and therefore has not had to provide an explicit opt-in for its users. It could be forced to abandon this method; if many choose to opt out, this could reduce returns on ad spending for advertisers, which may lead to lower ad pricing.