Europeans who enjoy posting on Instagram and Facebook may be left out in the near future. Meta, Mark Zuckerberg’s company, has warned that it may have to discontinue its popular social networking platforms at any cost.
Data privacy concerns with the European Union are adding to the company’s woes, which has been the focus of one governance controversy after another. Last week, Meta had the greatest one-day market cap loss of any U.S.-listed stock in history, as a result of a bleak outlook plagued by strong competition from $10 billion in Apple-related ad targeting headwinds and ByteDance’s Tiktok.
In an annual 10-K filing with the United States Securities and Exchange Commission, Meta cautioned investors that if the United States and the European Union fail to achieve a new deal on data transfers, Meta may decide to terminate its key operations in the area. According to the company, this would “materially and negatively” impact its financial performance.
The EU’s top court, in July 2020, invalidated the current data transfer agreement between the EU and the US, referred to as the Privacy Shield. This was on the basis that the EU could not be guaranteed its data would be protected from US government monitoring while held in data centres on American territory. Since then, Meta and other major US IT firms have opted to depend on a different legal method known as “standard contractual clauses” (SCCs), to transfer EU user data to the United States.
Europe has a very small user base, accounting for around 15% of Facebook’s 2.91 billion monthly active users. Nonetheless, its relevance to Meta’s financial statements is disproportionately large, with the area accounting for almost a quarter of the group’s sales in the three months ending December.
The vast majority of the issues stem from data privacy campaigner Max Schrems’ second successful historic data privacy lawsuit. The decision by the European Court of Justice, located in Luxembourg, dealt a significant blow to the operations of 5,000+ European and American businesses that rely on the EU-US Privacy Shield as their legal foundation for transatlantic data transfers.