Facebook Execs said Wednesday on the win call everything right.
Strong sales growth in the first quarter has washed away the fear of the impact of the Cambridge Analytica scandal on its ad-supported business. And leaders cleverly broke fears over the other big cloud that loomed on the horizon: the GDPR.
On May 25, the new Data Protection Act of the European Union comes into force. Strict rules apply for how Facebook receives and uses the user data underlying the Company.
Facebook managers have downplayed the potential impact of DSGVO, both in terms of revenue and user base. Investors breathed relief and shares of Facebook got a good boost, by 7% in the Nachbörsehandel.
But the celebration can be premature.
Even assuming that Facebook's positive assessment of the direct impact of the GDPR on their business has proven correct, there are many other ways in which the new rules could help. And for a Facebook-sized business, unparalleled regulation will certainly bring a range of unknowns.
Facebook does not see significant impact
"While we do not expect these changes to have a significant impact on advertising revenue, there is potential for some impact … we just have to watch how that affects the course time, "said CFO Dave Wehner.
The additional hurdles that the law creates in obtaining user consent mean that Facebook user growth in Europe is flattening or even subsiding, he added.
COO Sheryl Sandberg acknowledged that there are currently unknown people, but emphasized that this was not a Facebook-specific issue – negatively impacting the entire advertising industry. "The uncertainty that exists for us and all the other companies in the digital advertising industry is quite high, as it is now … we'll all know a lot more after we release [GDPR]."
She added, "As long as things happen in the industry, what happens, I think we will stay in a very strong position."
"A step in the right direction"
Some analysts are bullish on Facebook's outlook in Europe.
"The bottom line is that we expect a minimal impact from DSGVO implementation – we expect more" barking than bite "… headline risk is greater than fundamental risk – our proprietary due diligence with industry leaders suggests this is an initial one Upfront investment for all is required in the industry, but will not have a significant impact on core businesses, "wrote Brent Thill, an analyst at Jefferies, in an email.
"Given the resources of FB, we expect them to outpace all others relatively." (Some analysts have argued that the GDPR could even strengthen Facebook, as smaller companies have difficulty meeting their needs.)
Daniel Ives, chief strategy officer at GBH Insights, wrote in an email: "We see this as one Stepping in the right direction and for the road more clarity, as this was a great concern for the investors with the GDPR, who come down the pike, a little more wood to hack, but this transparency is accepted. "
But problems related to compliance – and lawsuits by injured Europeans – could still thwart the bill.
Facebook faces legal challenges
Max Schrems is an Austrian lawyer who raised legal concerns about Facebook in the European Union over data protection and data transfers – and ultimately changed the law. It poses a significant threat to the social networking giants who are trying to cross the Post-GDPR-EU: pro-privacy activists with a bone they can pick from Facebook.
Schrems already has a "stack of cases on his desk" he plans when the GDPR comes into effect, Bloomberg reported in March, and it's not unheard of to imagine that Facebook could be one of his goals. TechCrunch recently reported that European data experts expect Facebook to file a lawsuit for the changes it is undertaking in response to the GDPR. A tech law researcher told Business Insider that Facebook's requests for user data are not legal.
The effort is significant: a company found to be in violation of the GDPR can earn up to 4% of its annual world sales or $ 20 million ($ 24.5 million), whichever is greater , to get punished. Facebook's worldwide revenue in 2017 was $ 39 billion, which means that 4 percent would come to $ 1.6 billion.
Europe is not afraid to run after the American technology giants: under the leadership of Competition Commissioner Margrethe Vestager, the European Commission has forced Apple to pay 13 billion euros in taxes after its agreements in Ireland fell under EU rules ,
Facebook has said it's working to make sure it complies with the law – but people will test that for sure. And as the case proves Schrems, Facebook does not always win.
Brian Wieser of the Pivotal Research Group, one of the few analysts to receive a Facebook stock market valuation, predicted a shift in DSGVO digital media spend – highlighting the regulatory risks.
"It remains to be seen if and how Facebook (and anyone else selling digital advertising) attempts to comply with the GDPR will withstand regulatory scrutiny and avoid significant fines in Europe after May 25 this year," he wrote ,