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Meta, the parent company of Facebook, recently released its Q1 2023 earnings report, which showed better-than-expected revenue for the quarter. However, buried in the report were some concerns about the looming regulatory risks that the company is facing in Europe. The Irish Data Protection Commission (IDPC) is expected to issue a decision in May regarding transatlantic data transfers of Facebook EU/EEA user data, which could result in a suspension order for such transfers and a fine.
The issue at hand is a long-standing saga, which revolves around a clash between US surveillance laws and EU privacy rights. The key development that Meta is hoping will save its bacon in Europe is the adoption of a new high-level data transfer pact that aims to resolve the legal uncertainty around EU data exports. However, negotiations over this replacement deal have been dragging on longer than expected, and EU institutions are still reviewing the draft decision that the Commission announced in December.
Despite the delays, Meta remains hopeful that the new EU-US data framework will arrive soon enough to be implemented before the deadline for a suspension of its EU transfers. However, the company also warns that it “cannot exclude the possibility” that adoption won’t happen soon enough to prevent such an order.
During a call with investors, Meta’s CFO, Susan Li, was asked about the potential impact on revenues if the company is forced to suspend EU-US data flows on regulatory order. She responded by reiterating the company’s hope that the new high-level framework will save its bacon. However, if this sought-for escape hatch fails to open in time, she warned investors that Meta is facing a hit of around a tenth of its worldwide ad revenue. She said that roughly 10% of this revenue comes from ads delivered to Facebook users in EU countries.
Li caveated the disclosure by saying it’s difficult for Meta to forecast the overall impact of any EU data suspension at this point, given it lacks information on what a final order would contain, such as the length of a suspension.
Earlier in the call, Meta’s CFO offered a breakdown of ad revenue growth by regions, saying it was strongest in the “Rest of World” segment during the quarter, followed by North America and Asia-Pacific, while Europe had declined 1%. This decline in Europe’s ad revenue growth could be an indication that the regulatory risks the company is facing in the region are already having an impact.
In conclusion, while Meta’s Q1 2023 earnings report was upbeat, the looming regulatory risks in Europe could have a significant impact on the company’s future earnings. If the IDPC issues a suspension order for Meta’s transatlantic data transfers, the company could face a hit of around a tenth of its worldwide ad revenue. However, if the new EU-US data framework arrives in time, the company may be able to avoid such an order. At this point, it’s difficult to predict the overall impact of any EU data suspension, given the lack of information on what a final order would contain.
