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Meta: Stock of the Week

How might European data protection fines affect the world’s largest social media company?

Andrew Willis 10 January, 2023 | 7:44AM
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Andrew Willis: The year has only just started and Meta (META) investors have to face the possibility of a big fine for the company – adding to concerns that the Metaverse division may be overpromising and underdelivering.

In the most recent stumbling block for the company, the Wall Street Journal reported that Meta Platforms could be held accountable for not complying with the General Data Protection Regulation or GDPR, which are the European privacy rules that went into effect in 2018. As a result, senior equity analyst Ali Mogharabi says the firm could ultimately be liable for up to 13 billion dollars in fines.

On the face, the potential fine works out to about 4% of revenue, or 2% of our $260 fair value estimate. Not that big of a deal, but what about permanent changes that could reduce prices for ads on Meta platforms like Facebook?

Meta has been defining user behaviour data as necessary for the operation of services. As a result, users didn’t need to explicitly opt in before accessing the service. But it could be forced to abandon this method – and if users opt out, where does the advertising money go?

We think the European Data Protection Board’s decision, due this month or later, could divert advertising funds to contextual, or content-based information on the webpage rather than user information with targeted ads. This could result in ad prices that are 10-20% lower than we currently expect, and our company valuation would decline by 12%-25%. But the stock still looks more undervalued than that, especially while its platforms still have more users and usage time than any other social network.

For Morningstar, I’m Andrew Willis.

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Meta Platforms Inc Class A186.06 USD0.00Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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